Circle April 14th on your calendar this year as Tax Freedom Day for Pennsylvania. While tomorrow is the deadline for filing income tax forms, today is the day Pennsylvanians can start working for themselves rather than for the government.
Tax Freedom Day, calculated for each state by the Tax Foundation, marks the point in the year at which Pennsylvanians have worked enough to pay their federal, state and local taxes. This year, like the last several, Pennsylvanians will spend more of their income on taxes than on food, clothing, and housing—combined.
As a state, Pennsylvania has the 11th latest Tax Freedom Day—i.e., the 11th highest tax burden—occurring three weeks later than Alaska’s Tax Freedom Day. In 2009, Pennsylvanians worked 104 days just to earn enough money to pay off their total tax bill. Indeed, Pennsylvania’s state and local taxes alone consume 10.2 percent of personal income, or $4,463 per individual.
This year, Tax Freedom Day falls earlier than it did in 2008 and a full two weeks earlier than in 2007; however, the reasons for this change are not positive.
First, the current recession has reduced tax collections faster than income. Individuals have seen their incomes decline, and have thus dropped into lower tax brackets; families are spending and traveling less, thus paying less in sales, gas, and tourism-related taxes. Business profits have dropped dramatically, reducing corporate tax collections.
Secondly, although the recent federal stimulus legislation includes tax-cutting provisions, they are temporary (for 2009 and 2010) and largely comprise rebates and credits to encourage certain types of behavior and redistribute income. They are not the supply-side tax cuts that have proven to stimulate economic growth.
Although tax collections are declining, government expenditures will skyrocket this year. In fact, when the Tax Foundation recalculated the date of this year’s national Tax Freedom Day to include the cost of the federal deficit, it was the latest ever.
At the same time, a later Tax Freedom Day is in store for Pennsylvania if Governor Rendell’s proposals are followed. In his latest budget proposal, Rendell calls for an increase in the cigarette tax of 10 cents per pack, a new tax on other tobacco products, including cigars and smokeless tobacco, a severance tax on natural gas extraction in the Marcellus Shale reserves, a tax on insurance premiums, and eliminating the credit for businesses for submitting sales taxes. Pennsylvania counties and school district taxes are also set to increase this year.
The insult added to the injury is the cost of complying with the federal Tax Code. In 2008, 60 percent of federal income tax forms were filed by paid preparers, with compliance costs for taxpayers estimated to be over $300 billion. The tax code is so complex (over 60,000 pages), that several of President Obama’s cabinet nominees—including the man charged with overseeing the IRS—and members of Congress are unable to comply with it. Recent changes to tax law have only made the tax code more complex, increasing the cost of filing tax returns.
Although we are celebrating Tax Freedom Day earlier this year, there is little to be happy about when taxes continue to consume more than families pay for food, clothing, and shelter. Many people will be reminded of this tomorrow, as they rush to send in their tax forms.
Nathan A. Benefield is Director of Policy Research and Michael D. Acker is a research intern with the Commonwealth Foundation, an independent, nonprofit public policy research and educational institute based in Harrisburg.