Tomorrow is Tax Freedom Day, marking the date that the U.S. as a whole will earn enough money to pay off its tax bill for the year.
The Washington-based Tax Foundation has released a report calculating Tax Freedom Day for every year since 1971, and 2015’s continues to highlight the disturbing growth of government.
First and foremost, Tax Freedom Day falls on April 24 this year—three days later than last year’s date of April 21. In fact, Americans now pay more in taxes than they do in clothing, food, and housing combined.
As if that wasn’t disturbing enough, Tax Freedom Day does not account for all state spending, since governments have the tendency to rack up billions of dollars in debt and unfunded liabilities. Altogether, Tax Freedom Day would fall on May 8 if you account for federal borrowing.
It seems pretty obvious that four months of wages is an unhealthy amount for the government to demand, but some disagree. Last week, I refuted some of the most popular tax myths perpetuated by prominent progressive thought leaders like former secretary of labor Robert Reich.
Another popular myth often circulated during tax season is that high taxes have little effect on reducing economic growth. After all, the top marginal income tax rate in the U.S. was 94 percent throughout the 1950s, one of the most prosperous decades in American history.
Of course, the tax code of the 1950s was littered with so many loopholes as to bring the effective top rate down much lower. But beyond anecdotal evidence, hardline data from America’s own “laboratories of democracy”—the states—prove that lower taxes create more economic growth.
In addition to Tax Freedom Day, the Tax Foundation also releases its State Business Tax Climate Index every year, ranking each state’s code based on business-friendly metrics like low rates and simplicity. A quick glance at some of the states in the top 10, like Florida or Texas, should be proof enough that low taxes give rise to high growth. But, to quantify it more precisely, I maintain a spreadsheet measuring states on major metrics of economic growth (e.g., GDP, population, employment, personal income).
The results tell quite the story.
Comparing the Tax Foundation’s 10 most competitive states (Wyoming, South Dakota, Nevada, Alaska, Florida, Montana, New Hampshire, Indiana, Utah, Texas) to the 10 least competitive (Iowa, Connecticut, Wisconsin, Ohio, Rhode Island, Vermont, Minnesota, California, New York, New Jersey), the most competitive quantifiably perform better.
To be specific, from 2002-2012 (the last year for which full data is available), the 10 most competitive states grew 105 percent faster in real GDP, 104 percent in real personal income, and 312 percent in population. Most strikingly, the 10 most competitive states increased their workforce by 9 percent, while the 10 least stagnated at 0 percent.
That’s not to say that states like New York or Connecticut are economically struggling. To the contrary, they’re some of the richest parts of the country. However, their tax-and-spend policies create less economic growth than low-tax states like Texas, where people have a greater shot at finding steady employment and decent wages.
The statistics are remarkably clear: low taxes mean high growth. The less the government takes from Americans’ wallets, the more they have to save, spend, or invest in the market, enriching themselves and the country as a whole.
Policymakers better wise up to this simple fact of economics before they run out of other people’s money to spend.