Tax Freedom Day parade delayed
For years, federal tax reform was like the weather. Everyone talked about it, but no one did anything. Now the weather’s being handled, thanks to climate change activists. But the federal tax system remains a mess.
According to a Harris Interactive poll conducted for the Tax Foundation, 83 percent of Americans believe the federal income tax is too complex and nearly 60 percent think it’s too high. Three out of four favor major changes or complete overhaul.
Perhaps tax activists need a leader with Al Gore’s charisma. Or maybe a docudrama showing how working families are more threatened by rising taxes than polar bears are by global warming.
Today, the Tax Foundation announced that Tax Freedom Day will arrive nationally on April 30, two days later than last year. That’s 120 days – four months – that Americans will work to pay their federal, state and local taxes. The extra two days they blame largely on the progressive federal income tax, which takes more from taxpayers as their incomes rise, pushing up tax receipts in a hot economy. Rising property taxes in many places add to the burden.
They also calculate when Tax Freedom Day hits in the states. This year, it arrives in Washington on May 6, nearly a week later than the average and ranking us eighth in overall burden. Last year, we were fourth. With the feds collecting two-thirds of all taxes, the state variation is heavily shaped by where rich people pay their federal income tax. And a lot of them – including nine members of the Forbes 400 list of richest Americans — pay their taxes in Washington, primarily in the Puget Sound region.
Another Tax Foundation report finds that the average federal tax burden for households in the Seattle-Bellevue-Everett metropolitan area is $23,597, ranking the region 18th highest in the nation. Spokane’s $13,103 household average ranks 204th. The heaviest burden falls in metropolitan Stamford, Conn., which boasts a staggering average federal tax obligation of $82,745. Households in second-place San Francisco pay $36,409.
In Washington, the variation among congressional districts is striking. The average federal tax burden for suburban King County households represented by Rep. David Reichert is $30,214 – 26th in the nation and highest among Washington’s nine congressional districts. It’s nearly triple the $11,755 of Eastern Washington households represented by Rep. Cathy McMorris Rodgers, ranking 330th nationally and lowest in the state.
Such averages can mislead. For example, with a net worth of $53 billion, when Bill Gates attends a sold-out Mariners game, statistics would show that the average fan in the stands is a millionaire – just like the players on the field. A friend points out that if Microsoft billionaires Gates, Paul Allen and Steven Ballmer moved to Idaho, statistics would show our tax burden dropping, but none of us would be better off.
The better way to compare ourselves with other states is to look at the state and local tax burden. The Tax Foundation won’t release those data until next week, but it’s unlikely we’ve changed much since 2006, when they ranked Washington 13th, still high but out of the top 10.
Nationally, we’ve enjoyed a period of relative tax calm. With few exceptions, strong economic growth following the recession allowed many state and local governments to boost spending without general tax increases.
That’s about to change. Facing mounting pressure to fund education and health care, a number of states have put tax hikes back on the legislative agenda. And property taxes keep rising even as the market cools.
Lawmakers in Olympia will be able to avoid boosting taxes this year. But a 15 percent increase in spending – about double the rate of revenue growth – all but guarantees higher taxes or, less likely, deep budget cuts in the next few years. Politicians should not bet on an endlessly growing economy to save them from their overspending. And an increasing federal tax burden – worsening if Congress lets the Bush tax relief expire – reduces state and local tax capacity.
Taxpayers rarely distinguish which hand is in their pocket, but they will slap the one they can reach. Often, that hand is attached to someone close to home. Voters like to celebrate tax freedom early.