Tax Freedom Arriving Three Days Later in 2006, Report Says

Randy Hall

Staff Writer/Editor

(CNSNews.com) - Tax Freedom Day will fall on April 26 this year, according to the Tax Foundation's annual calculation using the latest government data on income and taxes.

"Tax freedom will come three days later in 2006 than it did in 2005," said Tax Foundation President Scott Hodge, "and fully 10 days later than it did in 2003 and 2004, when a combination of slow income growth and tax cuts caused Tax Freedom Day to arrive comparatively early, on April 16."

However, 2006's Tax Freedom Day is still considerably earlier than it was in 2000, when the economic boom, the tech bubble and higher tax rates pushed tax burdens to a record high, and Tax Freedom Day was postponed until May 3.

"Our economy has been growing at a good clip since mid-2003," said Hodge, "and those growing incomes are pushing people into higher tax brackets. When that happens, tax collections grow faster than incomes."

The report on tax freedom was prepared by Hodge and Foundation economist Curtis Dubay.

The annual survey follows the course of America's tax burden since 1900, examines the composition of today's tax burden by type of tax, calculates Tax Freedom Day for each state and compares tax payments to other typical consumer expenditures.

"Despite all the tax cuts that the federal government has passed recently, Americans will still spend more on taxes than they spend on food, clothing and housing combined," said Hodge.

In 2006, Americans will work 77 days to afford their federal taxes and 39 more days to afford state and local taxes. That makes taxation a bigger financial burden than housing and household operation (62 days), health and medical care (52 days), food (30 days), transportation (30 days), recreation (22 days) or clothing and accessories (14 days).

This year, the nation's average state-local tax burden will be 10.6 percent of residents' income, with the highest being Maine's 13.5 percent and the lowest being Alaska's 6.6 percent.

Six of the ten states with the heaviest tax burdens are in the northeast: Connecticut, New York, New Jersey, Massachusetts, Maine and Rhode Island. The other four are Washington, Minnesota, California and Illinois.

Many of these states reach Tax Freedom Day later because of the progressive federal income tax. States with large metropolitan areas offer higher-paying jobs and, as a result, many of the citizens earn enough to pay income tax at the highest rates. As a result, they must work longer to pay their disproportionate share of the tax burden.

Maine stands out as the exception. Its total tax burden is high despite low income and below-average federal taxes because of its unusually high state-local taxes.

The 10 states with the lightest total tax burdens celebrate Tax Freedom Day the earliest. Alabama's April 11 is the earliest of all. The next nine are Alaska, Mississippi, Oklahoma, Tennessee, New Mexico, South Dakota, Montana, Idaho and West Virginia.

Tax Freedom Day is early in most of these states because the average income is lower. They pay most of their federal income taxes at the lower rates, 10 percent and 15 percent. Alaska stands out as an exception. Income and federal tax payments are above average there, but state-local taxes are extraordinarily low.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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