Tax Freedom Day flaws

Judy Putnam

Today is Michigan’s so-called “Tax Freedom Day.”  Tomorrow, it’s “Tax Freedom Day” for the country as a whole.

The somewhat fuzzy thinking behind the Tax Foundation’s designation of Tax Freedom Day is that taxpayers are working to pay the equivalent of their salaries to the local, state and federal governments up until that point in the year, with freedom for the rest of the year to pocket the remainder. 

Tomorrow’s designation represents the national average, with some states falling before April 9 and some after.

I should stop right here to point out that Michigan’s so-called Tax Freedom Day is in the middle of the pack among the states. That should help put to bed the flawed notion that our state is a high-tax state. But you can rely on a nonpartisan Michigan Senate Fiscal Agency report to make that point rather than use the Tax Foundation’s questionable methodology.

The Tax Foundation ignores the fact that the money from taxes goes to pay for public schools, fire protection, roads, safe bridges, restaurant inspections, clean beaches and other services we often take for granted.

A bigger flaw in Tax Freedom Day is that many mistakenly think this applies to average Joe Sixpack. It doesn’t.

According to a report by The Center on Budget and Policy Priorities, about 80 percent of U.S. households are estimated to pay federal tax at a lower rate than the Tax Foundation’s estimated “average’’ federal tax burden.

If that makes your head spin, here’s a much more fun way of looking at it from the Minnesota Budget Bites blog by the Minnesota Budget Project.

“Sven and Ole, each of whom earns $50,000, are having lunch at the local coffee shop. Bill Gates walks in, and Sven yells, ‘We’re rich!’ Based on their average income, they’re all millionaires now. But the median income – where half of the people have a higher income and half are lower – is still $50,000, and is the more ‘typical’ income of the three men at the coffee shop.”

So “freedom” for Bill Gates is far later in the year than for Sven and Ole.

On this year’s “Tax Freedom Day,” Michigan families are facing deeper cuts to important services next year (education and public safety for starters) because some in the Legislature have dug in with a cuts-only budget scenario.

We have options – a graduated income tax, sales tax on services, beer tax increase, reduction in the generous exemptions for wealthy seniors, and closure of tax loopholes – that would help buffer the blows and still keep Michigan a relatively moderate tax state.

If we ignore those options, our Tax Freedom Day might as well be renamed the Ax Vital Services Day.

—  Judy Putnam

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2 Responses to Tax Freedom Day flaws

  1. Rick Haglund says:

    And nearly half of us pay no taxes at all! Check out Nancy Crawley’s fine column about this:

    http://www.mlive.com/business/west-michigan/index.ssf/2010/04/taxes_for_half_of_us_is_that_f.html

  2. Judy Putnam says:

    Make sure to say they pay no “federal income taxes.” Folks still pay tax on Social Security and Medicare, as well as sales tax, gas tax, and state/local income tax.

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