Tax Freedom Day 2001 Arrives in Virginia on April 30th

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Tax Freedom Day arrives in Virginia on Monday, April 30th this year. That’s when we stop working for government and start working for ourselves. For the average worker, all of the earnings of the first four months go just to pay taxes to the federal, state and local governments. Starting May 1st, we Virginians are free — at last — to take care of our own family’s needs.

May 3rd is Tax Freedom Day for the nation as a whole. The federal tax burden has grown by 14 days’ pay between 1992 and 2001 despite President Clinton’s promise that “the era of big government is over.” In contrast, state and local tax burdens have remained virtually unchanged during that period.

The federal government is requiring two extra days of servitude this year over last year. Not since World War II has the government demanded a greater sacrifice of personal freedom. Taxes take 35 percent of a worker’s gross income — 24 for federal taxes and 11 for state and local. For most workers, government’s share of their pay is larger than what they spend on food, clothing and shelter combined.

Tax Freedom Day varies from state to state. Lucky workers in Alaska and South Dakota celebrate on April 16 and April 21st. The residents of Connecticut will bear the nation’s heaviest tax burden in 2001 with Tax Freedom Day not arriving until May 25th. New York has the second heaviest tax with workers not meeting their total tax liability until May 14th.

The size of the federal government has gradually increased and is now at an unprecedented level. From the birth of the nation in 1776 until the early 1930s, government spending at the federal level never exceeded 3 percent of national income except during periods of war. In 1913, when the Sixteenth Amendment allowed the federal government to tax income directly on individuals, Tax Freedom Day arrived as early as January 30th!

In 1900, government at all levels consumed 9 percent of gross domestic product, the total output of goods and services. In 1930, the percentage reached 12 percent. By 1960, it had doubled to 27 percent, and today it is over 35 percent. If you add the costs of complying with government regulations, the cost to society is over 50 percent. Imagine the economic boom if the other half of workers’ labor were set free to boost productivity!

Put another way, in 1900, taxes took $1 of every $12 of earnings from American workers; in 1950, taxes took $1 of every $4; today they take more than $1 of every $3.

Now and over the next ten years, the federal government will collect $5.6 trillion more than they plan to spend. President Bush has proposed returning $1.6 trillion of the surplus. The House of Representatives agreed but they were only willing to return $1.3 trillion.

The purposes of federal spending have also changed gradually. In 1962, defense spending was 49 percent of the budget, and health and Social Security totaled 14 percent. Today those proportions are reversed; with defense reduced to 16 percent and Medicare and Social Security taking 44 percent and growing rapidly.

Instead, the politicians play the game that has gone on for centuries in most countries around the world. France’s Louis XIV’s finance minister Colbert said it best, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Without the tax withholding system, begun as a temporary device to fund World War II, the vast amounts of taxes could not be collected without a lot a lot more hissing.

We joke about taxes to relieve our stress, but there are serious issues at stake. We need to watch the erosion of personal freedoms. We need to ask what limits we are willing to support. What percentage of a person’s wages should tax never exceed? What level of complexity and special interest legislation are we willing to tolerate? What percentage of voters should be allowed to pay no taxes and have no incentive to reduce government spending? These are no longer the questions of the idle rich desiring to hoard their inherited wealth. These are the questions of the most productive members of society who fear that a system of increasing wealth redistribution and inefficient spending destroys the very economy it feeds upon. Many of our representatives appear to trust big government more than they trust the American people.

These are the issues that our country was founded upon, and the issues that must again be raised to end the era of big government indeed.

Photo used here under Flickr Creative Commons

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.