« Home | Corporate income tax change: single sales factor a... » | Impact of Utah state income tax changes on federal... » | BYU professor opposes vouchers? » | Impact of tax changes on Utah family of four » | Would HB148 repeal hurt taxpayers? » | Six ways (and counting) to understate government s... » | New state government growth figures » | Individual income tax changes » | Significant increases in education spending? » | Day 45 - Nearly done »

Tax Freedom Day

Tax Freedom Day will arrive on April 30th this year, according to the Tax Foundation, two days later than last year. On a state-by-state basis, Tax Freedom Day arrives on different days. In Utah, for example, Tax Freedom Day arrives on April 22nd, a couple days earlier than the nation as a whole.

Tax Freedom Day is a broad economic measure that accounts for the amount of federal, state, and local taxes paid as a percent of national income. In 2007, Americans will earn $12.199 trillion in income and pay $3.988 trillion in taxes, or 32.7% of national income. Multiplying 32.7% by the number of days in a year equals 120 days. April 30th is the 120th day of the year.

The Tax Freedom Day calculation includes business taxes that are hidden but are passed on to consumers in the form of higher prices, employees in the form of lower salaries and benefits, and shareholders in the form of lower dividends and stock prices.

Why does Tax Freedom Day arrive earlier in Utah?
Utah’s federal income tax burden is lower than the national average, due largely to larger families and lower average annual wages. Larger families mean more federal personal exemptions and child tax credits. In fact, many middle-income Utah families pay little or no federal income tax.

Utah’s average annual wage is about 18% below the national average (this is an average wage, not a per capita wage which would include children). Since the federal income tax is steeply progressive, Utah’s lower wages means that Utahns pay lower federal income taxes compared to the national average.

Several legislators argue that Utah’s lower federal tax burden justifies a higher state and local tax burden. However, every level of government should be held separately accountable for the taxes it imposes. For example, a city should not argue that it is justified in imposing higher taxes than other cities simply because the county tax rate is lower than other counties.

Responding to criticism from the Left
Some groups have criticized the Tax Foundation’s Tax Freedom Day calculation. They argue that Tax Freedom Day does not measure the tax burden of the average or median income American. The Tax Foundation responds that Tax Freedom Day is a broad measure that accounts for tax burden across the entire economy and was never intended to measure the tax burden of the “average” American.

Some groups maintain that Tax Freedom Day overstates America’s tax burden because taxes on capital gains are included in the numerator (taxes) but capital gains income is excluded in the denominator. The Tax Foundation responds that including capital gains income would impact Tax Freedom Day calculations by roughly one percent.

To read the Tax Foundation’s complete response to its critics click here.

Debt freedom day? Good question. Not anytime soon, sadly.

Fortunately, the state of Utah has managed its debts very well, receiving the highest ratings possible from Fitch (AAA), Moody's (Aaa), and S&P (AAA).

The state has a constitutional bonding limit (1.5% of total taxable property fair market value) and a statutory limit bonding limit.

Utah has a traditional rainy day fund which had $255 million at the end of FY2006 and has more than $800 million in FY2008 in a "working" rainy day fund, which is one-time and ongoing cash used for capital projects such as roads and buildings. If tax revenues do not materialize as projected, the legislature can divert the cash from the capital projects to cover operations and then either replace the cash with bonding or postpone the projects.

Post a Comment