We've all heard politicians argue about whether the government has a "revenue problem" or a "spending problem" as the debates about the fiscal cliff and sequestration have transpired over the past several months. Let me be clear: The U.S. government has a spending problem, not a revenue problem. On April 15, Uncle Sam will collect. The average American has worked since Jan. 1 to meet his or her tax burden. Graciously, we the taxpayers are granted a temporary reprieve each year, otherwise known as National Tax Freedom Day.
The Tax Foundation calculates a tax freedom day each year. It's the day that "the nation as a whole has earned enough money to pay its total tax bill for the year." National Tax Freedom Day comes just a few days behind our deadline to pay up, with the exception of Texas, where residents have a lower average state and local tax burden and therefore keep an extra eight days of earnings. Tax Freedom Day for Texans began on April 10.
Obviously, National Tax Freedom Day does not mean that we stop paying taxes that day. Tax burdens also vary tremendously across individuals, resulting in different individualized tax freedom days. But the Tax Foundation's calculations help put our overall tax burden into perspective. As a nation, we'll pay $2.76 trillion in federal taxes and another $1.46 trillion in state and local taxes. That equals 29.4 percent of all of the income U.S. citizens will earn this year. April 18 is 29.4 percent of the way through the year.
It's easy to lose sight of our massive tax burden in our day to day affairs. The Independent Institute's Government Cost Calculator helps to personalize the costs to associate these numbers with the real-life sacrifices Americans must make to meet our commitments to Uncle Sam. The most substantial tax, the income tax, is withheld from most American's paychecks, so we never "feel" the loss of the income. Other taxes are buried in our day to day purchases. Sure, we note sales taxes and meals taxes added to our bills. But each individual payment is small. Less obvious might be gasoline taxes, a myriad of utility taxes and "sin taxes." The list could go on and on.
The Tax Foundation and the Government Cost Calculator's work provides needed perspective on how all these taxes add up. For example, it takes Texans approximately 100 days every year to have earned enough income to pay all of these taxes. On average, Americans nationwide will work 40 days just to pay their income tax, another 25 days for payroll taxes, 15 days for excise taxes, and 12 days for property taxes. Overall, Americans will spend more on taxes than on food, housing, and clothing combined this year.
These calculations understate the government's fiscal burden, because the government issues debt to finance spending in excess of its tax revenues. Government debt is just a tax burden pushed into the future -- if you believe it will be paid back. Tax Freedom Day arrives later, when we account for the burden of the deficit.
National Tax Freedom Day, when the deficit is included, has occurred later over the last few years than at any time in our history, except during World War II. Tax Freedom Day would be pushed back nearly a month if the government were to try to cure the deficit by raising taxes. The result would be a tax freedom day that is more than 20 days later than at any other time in U.S. history.
To entirely eliminate the deficit, inflation-adjusted spending levels would have to fall to roughly the level of spending during President Clinton's last years in office. That is hardly a return to an era of "small government." Though, if I had my druthers, I'd like to see National Tax Freedom Day in January.
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