The Tax Foundation is the nation’s leading independent tax policy nonprofit, and it has coined a description of the impact of our tax system (state and federal income taxes, payroll taxes and property taxes) on our country. That description is Tax Freedom Day, and it is a significant date for taxpayers and lawmakers because it represents how long we Americans as a country must work to pay the nation’s tax burden.
Significantly, we Americans will spend more collectively on taxes in 2019 than we will on food, clothing and housing combined. This year Tax Freedom Day occurred on April 16, but if you include annual federal borrowing, which represents future taxes owed, Tax Freedom Day took place on May 8.
This year, Tax Freedom Day was the same date as last year, but it occurred five days earlier than in 2017, in large part due to the recent Tax Cuts and Jobs Act.
So where does the federal government's revenue come from? Individual taxpayers like us provide most of it. Income taxes contribute $1.822 trillion, over half of the total. Another third, $1.295 trillion, comes from your payroll taxes. This includes $949 billion for Social Security, $289 billion for Medicare and $46 billion for unemployment insurance.
Corporate taxes add $256 billion, only 7%. The Tax Cut and Jobs Act cut taxes for corporations much more than it did for individuals. In 2015, corporations paid 11% and income taxpayers paid 47%.
This year, Americans will work the longest to pay federal, state and local individual income taxes (42 days). Payroll taxes will take 26 days to pay, followed by sales and excise taxes (15 days), corporate income taxes (5 days) and property taxes (11 days). The remaining six days are spent paying estate and inheritance taxes, customs duties and other taxes.
The latest ever Tax Freedom Day was May 1, 2000; in that year, Americans paid 33 percent of their total income in taxes. Our total tax bite in 2019 was “only” 29% of our income.
When we examine each state’s tax system, we can be thankful that we live in South Carolina, since our state-specific Tax Freedom Day was April 10. New Yorkers had to work until the May 3, and they had the highest overall tax burden in the country. The Tax Foundation admits that these state-specific dates may be worse, since the ripple effects from the TCAJA have not been fully integrated into their state-specific analyses.
When tax preparation time rolls around next year, there will be some additional changes:
• Persons who don’t have health insurance this year will not owe an individual mandate penalty when they file their taxes in 2020, since the new tax law eliminated this penalty beginning in tax year 2019.
• The threshold for medical expense deductions will rise from 7.5% of AGI to 10%.
• Elimination of the alimony deduction is another Tax Cuts and Jobs Act change that took effect in 2019 rather than 2018. For divorce and separation agreements made or modified this year or thereafter, alimony payments will not be deductible.
• Retirement account contribution limits will edge up for 2019, as will allowable contributions to HSA accounts.
• Two other tax-friendly changes for tax year 2019 are: slight upticks in the standard deduction amounts for all types of filers, as well as slightly higher income tax brackets.