Monday, April 19, 2004

Many happy returns on Tax Freedom Day

The Arizona Republic

Besides Easter, April 11 also marked another notable date: Tax Freedom Day.

That's the symbolic point in the year when Americans, on average, finally have paid off their combined federal, state and local levies.

This year, national Tax Freedom Day arrived three days earlier than last year, thanks largely to the federal tax cuts passed in 2003. In fact, this is the earliest Tax Freedom Day since 1967, reports the Tax Foundation, a Washington, D.C., research group that makes the annual calculations.

"Federal tax cuts have made the average American tax burden lighter in 2004," Tax Foundation President Scott Hodge said in a news release.

But tax cuts don't deserve all the credit, because burdens would have fallen anyway since peaking at a record date, May 2, in 2000.

The late 1990s technology and economic bubble "really pushed up tax collections to an artificially high level," Bill Ahern, a Tax Foundation spokesman, said in an interview.

As the economy later weakened, stock options dried up and Wall Street gains evaporated, tax collections also fell.

The group predicts this year will mark a low point, as the strengthening economy starts to revive tax receipts.

Of the 101 days that Americans will labor to pay off taxes in 2004, the time breaks out as follows for specific levies:

•  36 days for income taxes, primarily at the federal level.

• 28 days for Social Security and Medicaid.

•  16 days for sales and excise taxes.

• 11 days for local property levies.

•  Nine days for business taxes, which the Tax Foundation assumes will be passed along to customers, employees and shareholders.

•  Two days for other taxes. (Totals more than 101 because of rounding.)

The analysis also paints an interesting picture of how taxes vary by location.

Residents of five Northeastern states carry the highest burdens, topped by Connecticut, where Tax Freedom Day doesn't arrive until April 28. Next come New York (April 27), New Jersey (April 19), Massachusetts (April 18) and Rhode Island (April 16).

Alaskans have the lightest load - Freedom Day there came and went on March 26. Three Southern states (Alabama, South Carolina and Tennessee) tied for the next-lowest burden, April 1.

But state tax rates don't altogether explain these differentials. That's because people living in high-cost states, where salaries tend to be better, generally pay more in taxes.

Curiously, the list of 10 top burdens includes two states, Washington and Nevada, that don't impose a state income levy. In Washington, high business and sales taxes more than make up the difference, Ahern said. In Nevada, he noted, personal incomes are rising to reflect the development of Las Vegas and, perhaps, the influx of Californians.

Looked at another way, the national figures show Americans spend much more time working to pay taxes than they labor for housing (66 days), health/medical (51 days), food and transportation (31 days each), recreation (22 days) and clothing/accessories (14 days).

Really sad is that Americans devote just five days on average to fund savings and investment accounts, proving that people aren't taking the "pay yourself first" adage to heart.

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