The deadline for paying taxes was more than a week ago. But Americans haven’t actually put in enough hours to afford all of the taxes they owe until now.
Friday is Tax Freedom Day, the day after which taxpayers would no longer owe taxes if they started the year by paying every dollar they owe to Uncle Sam, according to the Tax Foundation, a tax policy research organization.
Researchers calculate that it would take workers 114 days to make enough money to afford the total of $4.8 trillion in federal, state and local taxes they’ll owe this year. (That includes $3.3 trillion in federal taxes and $1.5 trillion in state and local taxes.)
This year’s tax bill adds up to 31 percent of total national income, more more than Americans are expected to spend on housing, clothing and food combined, according to an estimate from the foundation.
At April 24, Tax Freedom Day landed one day later than it was in 2014 and six days later than it was in 2013. That’s a sign we’re paying more in taxes, but the reasons why we’re paying more in taxes are mostly good.
Basically, more people are working and getting paid, which sometimes lands them in higher tax brackets. “It’s a little bit of good news, a little bit of bad news,” says Kyle Pomerleau, an economist with the Tax Foundation. “We’re making more money but of course we’re paying more in taxes.”
At this point, Tax Freedom Day is one day shy of where it was in 2007, before the financial crisis, Pomerleau says. But because taxes are higher now than they were then — think of the higher top tax bracket, the net investment income tax and the additional Medicare tax — the day could be pushed back if the economy continues to recover.
The break even point comes much later now than it used to in the early 1900s, before the income tax was created and before the tax code became ever more complicated. The latest Tax Freedom Day ever was in 2000, before the tech bubble burst and before the Bush-era tax cuts.
An individual’s Tax Freedom Day would depend on how much they make, where they live and what they did or bought throughout the year that they would have to pay taxes on, like shopping, going out to eat and so on. Likewise, from state to state, the day depends on what people earn and what the state and local taxes are.
States with lots of high earners, like New York, California and Massachusetts have later Tax Freedom Days. States with high income tax rates also had lower tax burdens. People in Connecticut and New Jersey have the biggest tax bills and can’t celebrate until May 13. Those in Louisiana had the lowest tax bills and were in the clear by April 2.