Americans just finished filing and paying for their federal income taxes. It was painful and expensive. Collectively, we still have several more days to go before we are done paying for our entire tax bill.
In 2016, Tax Freedom Day is April 24. As the Tax Foundation explains in its annual report on the issue, "Tax Freedom Day is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year." The tax bill in question includes all federal income taxes, payroll taxes and state and local taxes. In 2016, that's $4.99 trillion, including $3.3 trillion in federal taxes. That's 31 percent of national income.
If it sounds like a lot of money, it's because it is. As the report states, "Americans will collectively spend significantly more on taxes in 2016 than they will on food, clothing, and housing combined." Unfortunately, the system is designed so that many of us will never know how much more we pay in taxes than we spend on our other big budget items.
For one thing, most of the federal and state income taxes are withheld on each of your paychecks. We have Milton Friedman to thank for that! The payroll tax is even more opaque because not only is it withheld from your paychecks but also -- even if you look closely at your document -- you will only see your share of the tax as an employee, not how the employer side of the levy affects your wages.
But it gets worse: If you included annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur 16 days later, May 10. That shouldn't come as a surprise, because from 2002 on, the federal government has consistently spent more than it collects in revenue. It's also worth noting that for a few years after 2009, the deficit was over $1 trillion -- and though it's lower now, it is scheduled to rise again starting this year.
The tax burden shouldered by individuals also varies depending on which state they live in. According to the Tax Foundation's report, thanks to a combo of high income taxes and higher state taxes, if you live in Connecticut, New Jersey or New York, your Tax Freedom Day isn't until May 21, May 12 or May 11, respectively. Residents of Mississippi were already freed from taxes April 5.
When I asked the Tax Foundation whether it invented the Tax Freedom Day concept, the author of the report, Scott Greenberg, told me that it didn't: "Tax Freedom Day was created by Dallas Hostetler, a Florida businessman, in 1948. He transferred the trademark to the Tax Foundation in 1971, and we've been calculating it ever since."
Moreover, a look at historical data reveals that Americans' tax burden is growing significantly. In 2011, Tax Freedom Day was 11 days sooner than today -- most likely because of the many tax hikes implemented under the Affordable Care Act but also thanks to an increase in the payroll tax and the expiration of Bush-era tax cuts on high-income earners. Greenberg wrote to me, "Since 1900, Tax Freedom Day has grown later and later in the calendar, as federal, state, and local governments have collected more and more of Americans' income in taxes."
That could change for the better or the worse. Greenberg noted, "In the coming years, the date of Tax Freedom Day could vary greatly, depending on whether Congress decides to increase Americans' tax burden, lower it, or leave it the same."
Until then, buckle down at your desk and work hard to pay our enormous and growing tax bill.