Americans rightly dread Tax Day. Millions scramble to make it to the post office by midnight with reams of paperwork for the Internal Revenue Service. It’s an annual ritual that grows more complex each year. The worst part about it is that every hour of every day spent at work is devoted to paying Uncle Sam until April 18, this year’s Tax Freedom Day.
That’s the date the Tax Foundation reckons taxpayers start earning money for themselves instead of the federal, state and local tax man. This year, taxpayers will spend five extra days working to pay for the tax increases included in the “fiscal cliff” tax deal and for the dreaded Obamacare.
It wasn’t always this way. A century ago, Americans spent less than three weeks of their lives working for the government, which came to about 6 percent of their income. Tax Freedom Day didn’t creep into the months of March and April until FDR and the New Deal. The trend since the turn of the last century has been for Tax Freedom Day to arrive later in the year, reflecting the increasing weight of both federal and state taxes. There’s not much hope that taxation will shrink soon.
There are regional differences. Residents of Mississippi and Louisiana begin working for themselves on March 29, while high-tax states like Connecticut keep their citizens paying until May 13. The District of Columbia and Virginia are slightly greedier than most other states, with Tax Freedom Day falling on April 20. It will probably fall later next year in Virginia when Gov. Bob McDonnell’s billions of dollars in new taxes take effect.
Maryland’s liberation day falls on April 21, a day later than Virginia. Maryland has the eighth-highest local tax burden of all the states, along with a relatively high corporate-tax rate of 8.25 percent. That makes it 41st of 50 states for “business friendliness.” Virginia has an overall tax burden below the national average, and a corporate-tax rate of 6 percent. The two states have the same top income-tax rate; Maryland has the nation’s third-highest income-tax revenue. Virginia comes in at No. 11, even with a larger population.
Income taxes, whether on wages or corporate earning, are the most damaging, as they reduce the incentive to work and invest. Virginia is no exemplar, but Maryland’s tax regime is worse. Both states are somewhat insulated from the consequences of high-tax schemes owing to their proximity to the seat of the federal government, with ready access to jobs that other states don’t have. But dependence on the federal government is a losing strategy for growth and job creation. The formula for real growth is based on enabling Americans to keep more of their money. Tax Day is the needed reminder that governments can’t create wealth. They only consume it.
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