As one-year snapshot, Tax Freedom Day looks good

Published 12:00 am Sunday, April 12, 2009

The week for settling up our taxes is upon us.

It’s an illusion, of course. People pay taxes every day of the year, but for some reason April 15 — the deadline for filing Mississippi and federal income tax returns — is one of the few times people pause, even briefly, to think about their share of the government tab.

There’s reason for cheer this year, especially for Mississippians.

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According to The Tax Foundation, an independent, nonprofit organization, Tax Freedom Day — the day on which an average American’s income starts being his or hers — is eight days earlier than it was in 2008. Specifically, it’s April 13.

For this state, Tax Freedom Day came even earlier. It was March 28 this year.

As much as folks gripe, Mississippians are under-taxed in comparison to people in states such as New Jersey, New York and California. People in Connecticut will wait the longest, until the last day of this month, before achieving symbolic freedom from taxes. Only people in Alaska and Louisiana have an earlier freedom day than Mississippi, and it’s not by much.

The way the foundation picks freedom days is by dividing the total collections of all taxes by the total income of all people. The resulting percentage is then applied to a 365-day calendar.

Without reference to days and months, here’s another way to think about it: For every dollar a typical person received last year, 28.2 cents was paid out in local, state or federal taxes. That figure is down sharply from 2000 when the government cut was 33.6 cents.

What The Tax Foundation snapshot doesn’t do — and readily admits that it doesn’t — is offer much context.

For one thing, taxes are not spread evenly. Those with the highest incomes and highest-valued property might work eight months or more to pay taxes and four months for themselves. Due to the Earned Income Credit and other programs, some who pay only sales taxes actually net more revenue from government than they pay. The “average taxpayer” is a hard person to find.

Of greater importance are the two reasons why freedom day came sooner this year. One is that the recession means fewer people are working and while there’s a lot less revenue from investments, tax payments have still fallen more sharply than income. The other is federal stimulus legislation that temporarily lowered taxes, one through a direct rebate to almost everyone who filed a federal return in 2007.

So the big picture not only isn’t rosy, it’s devastating.

Why? Because Tax Freedom Day doesn’t include government spending in its formula, and, especially at the federal level, the government has long spent more than it receives and, in the last six months, has increased spending as never before.

If it were you or me, it would be like this: Income for year one, $25,000; spending $30,000 (putting $5,000 on the Visa card to pay later). Income for year two, $30,000, spending $37,500 (putting $7,500 more on the Visa card). Income for this year, $35,000, spending $70,000 (putting $35,000 more on the Visa card).

If we did that, we’d be declared nuts, but it’s what members of Congress have been doing for generations and the vast majority keep getting re-elected term after term.

We, the people, have become buy now, pay later addicts like no others in the history of civilization. And it has absolutely nothing to do with who’s a Democrat and who’s a Republican.

The upshot of all this is that if last year’s additions to the federal deficit were included in The Tax Foundation’s chart, instead of Tax Freedom Day being moved back to April 13 this year, it would surge ahead almost two months.

For now, it’s all words on paper, dots on a graph. Yet everyone from the president of the United States down to the man who sells popcorn at the picture shows knows this is “unsustainable.”

So enjoy the passing of Tax Freedom Day. Enjoy the passing of April 15, a day many have dreaded since the Internal Revenue Service was created and Mississippi decided that if the feds could tax income, so could the state.

The truth is that taxation has a noble purpose: shared services. We have everything from a military to protect us to fire trucks that come when we call thanks to taxes. Medical and scientific breakthroughs have come and great universities exist because people pay taxes.

Eventually, however, we’re going to have to pay up. That’s what President Obama means when he talks about “hard choices” to come.

Tax Freedom Day is an illusion. By definition, something that’s an illusion appears to be real, but isn’t. There can’t be a sure-enough freedom day until the outgo matches the income.