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The American tax burden and 'tax freedom day'

William and Paula Smith prepare their taxes at their home in Salt Lake City, Friday, March 30, 2012.
William and Paula Smith prepare their taxes at their home in Salt Lake City, Friday, March 30, 2012.
Ravell Call, Deseret News

For 64 years, the Tax Foundation in Washington has calculated America's tax burden in a way that lends a stark perspective. It answers the question, if Americans began working on New Year's Day and had to apply all their wages toward their federal, state and local tax obligations, how many days would it take them to do so and on what day would they finally be able to earn money for themselves?

The answer, for this year, anyway, is April 17. That's true for people who live in Utah, as well. The figures, which were released this week, are calculated by state as well as nationally. In Connecticut, taxes wouldn't be paid until May 5, but in Tennessee, "tax freedom day" came Saturday.

The Tax Foundation is a nonpartisan research group whose aim is to educate Americans about sound tax policy and the tax burdens they bear. The idea of quantifying this in terms of days worked makes for some easy comparisons and helps to understand in which direction the nation is heading.

This year's "tax freedom day" comes four days later than it did last year. For the most part, this is a sign that the economy is on the mend. An increase in income translates into an increase in tax collections. April 17 is actually a huge improvement over the early 1980s, when "tax freedom day" drifted into May for the nation as a whole. However, the report this week is careful to note that the earlier date also is a consequence of the enormous debt the federal government accumulates. If Washington were to raise taxes to cover this year's $1.014 trillion budget deficit, freedom day wouldn't arrive until May 14, nearly a month later.

The history of "tax freedom day" is instructive. In 1900, it came Jan. 22. During the Great Depression, it jumped way ahead. By 1936, freedom day was March 15. A lot of the extra burden back then was supposed to be temporary, to relieve emergency conditions. But freedom day never again dropped to its previous levels. Also, the Depression was when the mix between local and federal taxes began to change. Federal taxes began to assume the largest share. Today, Americans pay $2.62 trillion in federal taxes and $1.42 trillion in state and local taxes.

Add those figures together, and Americans this year will spend more on taxes than on food, clothing and housing combined. These are sobering statistics that ought to make every American question the tax burden and its purported benefits.

Against the backdrop of this report, the United States on Sunday officially became the nation with the world's highest corporate tax rate, with a combined federal and state rate of 39.2 percent. Critics have attacked that figure by noting that many corporations pay considerably less because of loopholes and breaks. But that argument speaks to the almost indecipherable complexity of the tax code, which is itself a burden and a hindrance to growth.

Real prosperity comes from private, job-creating investment and the millions of decisions individuals make with their own money. Government provides legitimate services that support commerce and help goods and services flow smoothly. But a tax burden that takes almost one third of private money doesn't just result in an interesting yearly calendaring event by a Washington foundation. It limits freedom in real ways.