California Tax Freedom Day: Earlier than you might think?

There may only be one date that is burned as deeply into our national consciousness as deeply as July 4 and September 11: April 15, Tax Day.

For years, the conservative Tax Foundation has been trying-with some success-to get Americans to look at another day each year: Tax Freedom Day. This is the theoretical day when the "average" person has made enough to pay off all their taxes for the year and starts working for themselves instead of the government. Each year the Foundation calculates what percentage of overall income is taken up by all the income, sales, business and other taxes, and compares it to the total national income.

This year, according to their calculations, government is taking up 31 percent of all the money Americans make. So, according to Foundation spokesman William Ahern, Tax Freedom Day comes when we're 31 percent of the way through the year, or April 23. But if you're a Californian, it comes a week later, on April 30. Only Connecticut, New Jersey and New York come later.

Not so fast, say some. Jean Ross, director of the left-leaning California Budget Project, say this annual "holiday" preys on people's misunderstanding of the difference between an average and a median. For example, she said, if you take a Bill Gates, someone working at Subway, and a "lowly reporter," on average they're extremely rich. But if you take the median, you're left with a reporter's salary.

"I think if they were concerned with telling you what the typical family did, they would use a median," Ross said. "They don't, because it doesn't serve their purposes. They choose not to do it because it would tell a different story."

About 80 percent of Californians pass their personal "tax freedom day" before April 30, Ross said. Because of progressive taxation, it is mainly high income individuals who pass their own tax freedom thresholds on this date or later.

In fact, Ross said, many Californians pay no state income tax at all. This including nearly half of families with children, due to exemptions in the state tax code favoring families. In 2006, a family of two parents and two children would need to make $49,083 before they paid any state income tax at all. The median income of such a family in 2006 was $55,319.

Ross said she refuses to do competing calculations of a median tax freedom day because she disagrees with the concept. A more useful measurement, she said, would be "Tax Value Day," which would include the value of clean drinking water and good roads.
"I think we need to look at what we get in return for our dollars," Ross said.

Allen Prohofsky, a senior economist with the Legislative Analyst's Office, backed up many of Ross's points. He invited skeptics to check out the California Franchise Tax Board's 2006 annual report, which includes detailed statistics on who actually owed the state money at the end of the year. Due to the state's highly progressive tax system, among those making less than $27,000, the majority did not owe any state income taxes. Even among those making $50,000 to $59,999, more than one in six paid zero state income taxes.

"The median will be much lower than the mean," he said. "A larger portion of California tax returns report zero California income tax (than most other states)."

Not surprisingly, Ahern takes issue with these critiques. He said that if they calculated individual tax freedom days, "most people would be in a bell curve right around April 23." Ahern also argued that it appropriate to average out the burden to some extent because many business taxes have a kind of trickle-down effect, with their costs shared by customers, employees and shareholders. Finally, he said, the liberal critique of their methods cuts against their own arguments for progressive taxation.

"How can they argue that the average is off because rich people are paying too much, then argue that they're not paying enough?" he asks.

While California and other states with late tax freedom days do tend to have high taxes, Ahern noted status is mainly due to other factors. These states tend to be the most urbanized, with the highest incomes and highest costs of living. This means that more ratepayers find their way in the higher federal tax brackets.

The Foundation has been calculating Tax Freedom Day since 1971, and has done additional calculations for states since 2000. It was first calculated in 1948 by late Florida businessman Dallas Hostetler, who was upset about all of the hidden taxes in his income tax-free home state of Florida. He did the numbers for the next 23 years, before asking the Foundation to take over.
The concept has since spread to organizations in 15 other countries, most of them in Europe. Nearly all of them have a much later Tax Freedom Day than the US, Ahern said, with the United Kingdom's June 1 being fairly typical. This is largely because these countries have various forms of socialized healthcare, essentially taking one of the three largest expenses for most people-housing is the other-and nationalizing it.

Many fiscal conservatives have taken the George W. Bush administration to tasks in recent years for runaway spending, and the Foundation is no exception. While Tax Freedom Day is a "snapshot" of the current year, Ahern said, "deficits are a promise of future taxes."

"The government has never stopped growing," Ahern said. "It's grown fastest under George W. Bush."