Commentary

Tax Freedom Day: Real or Imagined?

Americans are about to finish paying taxes this year. Kind of. Tax Freedom Day comes on April 9 in 2010, but it’s an artificial freedom. Massive borrowing this year — the federal deficit is expected to run about $1.6 trillion — guarantees future tax hikes. And just wait until the real cost of health care “reform” kicks in. The sky will be the limit for taxes.

Not that the president is worried. During a recent question and answer session, a worker at a battery technology firm observed that we were “overtaxed as it is.” President Barack Obama appeared to disagree. I say appeared, because after denouncing “misinformation” and “misapprehensions,” he spent more than 17 minutes talking about just about every fiscal subject except whether we are overtaxed.

Tax Freedom Day, when we finally stop paying for government, comes a day later this year than last, but about two weeks earlier than in 2007. We still are devoting more than a third of our lives to working for Uncle Sam, but in relative terms things seem to be a lot better than just a couple years ago.

If only it were so.

Americans this year will spend more on taxes than on clothing, food, and shelter combined.”

The relief is temporary. The Tax Foundation, which measures TFD, points out that “[t]he recession has reduced tax collections even faster than it has reduced income” and that legislators “have enacted large but temporary income tax cuts for 2009 and 2010, just as President Bush did in 2008.” Moreover, the estate tax and “the so-called PEP and Pease provisions of the income tax” were repealed in 2010 as part of previous legislation.

Even as it is, Americans this year will spend more on taxes than on clothing, food, and shelter combined. Obviously, we sometimes make bad purchases. Some of the clothes we wore fell out of style and some of the meals we ate were tasteless. Some of the houses we lived in proved hard to sell.

But consider the value of the government “services” that we received: bailouts of banks, companies, homeowners, labor unions, and most everyone else with political connections; a coming federal takeover of the health care system, which will reduce both the choice and quality of care; a gaggle of foreign “welfare queens” on the American military dole, dedicated to doing as little as possible for their own defense; expanding government bureaucracies at home determined to micro manage our lives at work, at play, and at home; out-of-control entitlement programs set to wreck federal finances; and thousands of pork barrel projects designed to reelect the very politicians who voted for all of the aforementioned programs and policies.

In fact, one has to wonder if Washington can get anything right. Last year Congress passed with great fanfare a “stimulus” bill. Assume the best case analysis, that dumping more cash in social programs, tossing money at infrastructure projects, and subsidizing states and special interests alike can generate job growth. The benefits still would be only temporary, and overshadowed by the long-term cost of the added borrowing.

In fact, the CBO predicted that the added spending would increase the GDP a little through 2012. Then there would be no net impact for a couple of years. And then the misnamed stimulus would reduce economic activity starting around 2015. The best case would be a continuing economic boost through 2014. But in any case the “stimulus” bill would end up cutting the GDP permanently. Which means workers will be receiving lower pay even as they are being forced to pay back Uncle Sam’s loans. Heckuva job, Barack!

The president might not get it, but by any measure of benefits received Americans are overtaxed.

The average TFD is bad enough. Many states are worse. Connecticut continues to dominate the number one position, coming in at April 27. New Jersey is number two, with its people paying for government until April 25. New York suffers at number three, with its TFD on April 23.

Happily, a few Americans get off relatively more lightly. At the other end of the spectrum are Alaska and Louisiana, whose residents were able to start partying on March 26. Mississippi was next at March 28.

Unfortunately for all Americans, TFD today is merely the proverbial calm before the storm. In a world of endless red ink and the coming debt tsunami, spending rather than taxing is the true measure of government’s burden.

Explains the Tax Foundation: “Since 2008, however, deficits have been massive by any measure, and as a result Tax Freedom Day may give the impression that the burden of government is smaller than it really is. If the federal government were planning to collect enough in taxes during 2010 to finance all of its spending, it would have to collect about $1.3 trillion more, and Tax Freedom Day would arrive on May 17 instead of April 9 — adding an additional 38 days of work to the nation’s work for government.”

This number is striking. The previous TFD record was May 1 in 2000. And that year borrowing would not have pushed the date forward even one hour. In 2000 Washington ran a $236 billion surplus, the largest ever. May 1 really did reflect the burden of government.

And the future looks bleak. In its analysis of the president’s budget, released in March, the Congressional Budget Office figured that the deficit for this year would be slightly less than the administration projected, but the collective red ink from 2011 and 2020 would be $1.2 trillion greater, for a total of $9.8 trillion. The agency warned that deficits for 2010 and 2011 “would amount to 10.3 percent and 8.9 percent of gross domestic product (GDP), respectively. By comparison, the deficit in 2009 totaled 9.9 percent of GDP.”

Then there would be a short drop, but only short drop. Explained CBO: “the deficit under the President’s proposals would fall to about 4 percent of GDP by 2014 but would rise steadily thereafter.” The federal debt obviously would rise too. As a result, “Net interest would more than quadruple between 2010 and 2020 in nominal dollars (without an adjustment for inflation); it would swell from 1.4 percent of GDP in 2010 to 4.1 percent in 2020.”

These estimates don’t include any of the inevitable but unbudgeted future spending increases. The FDIC has been closing a record number of banks. The Pension Benefit Guaranty Corporation’s fund is running in the red. Fannie Mae and Freddie Mac continue to lose money — and the financial hemorrhage will reach flood stage if the commercial real estate market tanks, as is widely expected. Most federal health care “reform” outlays don’t kick in until mid-decade.

Then there are Social Security and Medicare, which together have $107 trillion in unfunded liabilities. Contra expectations, Social Security began running a deficit this year. And there’s no money in the fraudulent “trust fund” to pay for future benefits.

Looking just at the time frame just through 2020, CBO warns: “To keep annual deficits and total federal debt from reaching levels that would substantially harm the economy, lawmakers would have to increase revenues significantly as a percentage of GDP, decrease projected spending sharply, or enact some combination of the two.”

Of course, we all know the likelihood of politicians suddenly becoming responsible fiscal stewards. America is starting to look like a bigger version of Greece, only a few years behind.

Even after you’ve finished paying your taxes this year, it’s too soon to celebrate. You really aren’t done. And you may never be done.

The president and Congress are attempting to run a welfare state on the cheap. Unfortunately, the bill eventually will come due. And when it does we may be lucky if Tax Freedom Day ever comes again.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Reagan, he is the author of Beyond Good Intentions: A Biblical View of Politics (Crossway).