April 27, 2007 won’t appear as a holiday on anyone’s calendar. Few workers will get the day off. But it will be the first day Pennsylvania’s workers stop working to pay for the cost of government and begin working for themselves and their families.
According to an annual report from the Washington, D.C.-based Tax Foundation, Tax Freedom Day for Pennsylvania falls on April 27th this year. In other words, the average working Pennsylvanian had to labor from January 1 to April 27—a total of 117 days, or nearly one-third of the year—just to pay federal, state and local taxes. The combined cost of government will consume almost 32% of the income of Pennsylvania residents.
Tax Freedom Day illustrates exactly how burdensome taxes are to Pennsylvanians. The current system of collecting taxes is intentionally designed to hide the true tax burden. Automatic withdrawal from workers’ paychecks for income, Social Security, and Medicare taxes (and matching payments for payroll taxes from employers) by the federal and state government spread out the burden over the year, and alleviate the pain of having to write out a check to the IRS or the state department of revenue.
The state collects an incrementally small tax on purchases through the sales tax so as to be unobtrusive. But these add up over time. Taxes on businesses, passed on to consumers through higher prices, lower wages, or fewer jobs, are also hidden from view. Even property taxes—least popular precisely because they are most transparent—can be hidden as a portion of monthly mortgage and escrow payments.
This is why Tax Freedom Day is so important, to remind us how much we really pay for big government in Pennsylvania and the United States. Pennsylvanians are forced to spend more money in federal, state, and local taxes than on housing and health care expenditures combined. The question for citizens, of course, is whether we are satisfied with what we get in return for our taxes? Is three-and-a-half months of work worth our “return on investment” from all levels of government?
For the nation as a whole, Tax Freedom Day falls on April 30th. Dates for individual states range between April 12th (Oklahoma) through May 20th (Connecticut). Twenty states have Tax Freedom Days after Pennsylvania’s, while 28 states have lower overall tax burdens.
Two factors drive these state differences. Federal tax burden is largely driven by the income of state residents—given the progressive rates of federal income taxes, states with higher income residents have a higher federal tax burden. State and local tax burdens also vary state-to-state, driven by state tax policy.
Here are some more facts about Tax Freedom Day in Pennsylvania:
- Pennsylvania has the 24th highest state and local tax burden in 2007, and the 19th highest federal tax burden.
- Pennsylvania’s Tax Freedom Day is one day later than a year ago, and 10 days later than it was just three years ago.
- State and local taxes consume 10.8% of Pennsylvanians’ income, about $4,400 per person.
- Pennsylvania’s state and local tax burden increased from 8.8% in 1970 (a 23% increase) and from 9.3% as recently as 1990 (a 16% increase).
- PA had the 42nd highest state and local tax burden in 1990—but has surpassed 18 states by raising taxes since then.
Unfortunately, many policymakers view Pennsylvania’s middle-of-the-pack ranking as justification for higher taxes and spending. In fact, Governor Rendell’s budget proposal notes that spending increases by many states—including several of our neighbors—has been higher than Pennsylvania’s over recent years. Of course, while many of those neighbors (particularly New York, New Jersey, and Ohio) rank near the top in tax burden, they also join Pennsylvania near the bottom in rankings of economic growth.
Higher taxes—even when used to pay for “economic development spending”—hurt job creators. An analysis by the Commonwealth Foundation indicates that the ten states which lowered their tax burdens the most during the period from 1970-2006 saw job growth four times as high as the ten states (including Pennsylvania) that increased tax burdens most during that time.
We cannot continue to expect hard working Pennsylvanians to labor for nearly a third of the year to pay for bloated federal, state, and local government operations. Pennsylvania’s workers—not politicians in Harrisburg and Washington—have a better sense of how to spend their well-earned money. Taxpayers, and our economy, will be better off if we can celebrate Tax Freedom Day a little earlier next year.
# # #
Nathan A. Benefield is Director of Policy Research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.