Tax Freedom Day

Yesterday was Tax Freedom Day for the nation! (The day in which you have finally earned enough to pay the government (federal, state, local) all the money it will grab from you this year)

I did some research on the relative taxes in VT, NH, and NY. Common sense tells me that Vermont taxes are lower than New York taxes but higher than New Hampshire taxes. But, according to CNN, Vermont ranks as #1 in the nation with the highest tax rate of 14.1% of your income going to state and local governments! New York ranks 3rd at 13.8%, and New Hampshire ranks 49th at 8%.

Wait, how can that be?

NY carries higher sales tax burdens (avg of 8.25%), and higher gas taxes (40.9 cents/gallon) than VT does (6% and 20 cents/gallon). So what gives? VT does have a higher maximum percentage income tax (9.5%) but it doesn't kick in until nearly $350,000. Meanwhile, NY's maximum income tax percentage (6.85%) kicks in at $20,000 while Vermonters are only paying 3.6% on up to 31 grand. (figures from Retirement Living) The only thing I could figure out was that VT's average property tax rate is $16.35 on $1,000 worth of property while NY's average is only $11.38. (NH has NO payroll tax, NO sales tax, gas tax of 19.6 cents/gallon, and its 5th in the nation property tax rate still beats Vermont's by 2 cents/$1000)

Well, CNN was using a percentage rate not amount paid. Since I was reasonably sure NY's average income was higher than VT's, I decided to check average AMOUNT paid. Sure enough, NY came in ahead of VT this time with an average per capita taxes paid amount of $6,500, good enough for second place. VT was fifth with an average per capita amount of $5,400. Using this measure, NH wound up 39th with $3,500. While this put NY ahead of VT, I was still stunned at how high VT ranked. My I-like-NH-because-it-has-low-taxes feeling was given a whopping boost.

But wait! Seems our friends at CNN didn't count ALL taxes. For one, I believe they left out business taxes that get passed on to consumers. They may have missed some others as well. In any case, a quick check over at the Tax Foundation website revealed that NY ranks number 3 in the nation for total taxes collected per capita, with Tax Freedom Day falling on -yikes! - May 3.

Ok, about the same as before. What about VT and NH?
Well, well, well! VT's Tax Freedom Day of April 19th gives it a ranking of 24, comfortably removed from NY and landing it in the middle of the pack. New Hampshire gave up some ground under this ranking but still ended up a respectable 35th with a Tax Freedom Day of April 15.

Incidentally, Tax Freedom Day fell on January 22 in 1900, and fell on the 19th day of the year 6 times during the first 15 years of the twentieth century! Taxes were just 5-7 percent of total income. WWI shot taxes to 14.5% in 1921 to pay off the war and reconstruction efforts. Taxes dropped back for a while until the Great Depression-FDR-WWII disaster caused them to skyrocket from 10.7% in 1929 to 24.2% in 1945 (spiking to 25.7% in '43).

This means the increase from 24.2% in '45 to 30.8% projected for '08 could almost be explained away as inflationary adjustments (though it did spike to 33.6% in 2000 (thanks Clinton)). And it doesn't take into account the tremendous budget deficits our wise and thoughtful leaders have built up. But still. On a percentage basis, nearly half of what you pay in taxes this year came from increases seen in a mere 14 years. Thanks, FDR. A lot.