The Tax Foundation announced today that what it calls “Tax Freedom Day” for 2011, or the day it claims Americans will have “earned enough money to pay this year’s tax obligations at the federal, state and local levels,” will occur on April 12. We’re updating our analysis explaining the problems with this annual report, but in the meantime, here are the basics:
Many journalists and policymakers have misinterpreted the Tax Foundation’s report as reflecting the tax bills that typical middle-income workers face. But in reality, the Tax Foundation’s calculation of the “average” tax bill merely measures tax revenues as a share of the economy.
In a progressive tax system like ours, only upper-income households pay tax at rates at or above the overall level of revenues as a share of the economy. Authoritative figures from the non-partisan Congressional Budget Office show that middle- and even upper-middle-income Americans pay a considerably smaller share of their income in taxes than the Tax Foundation report implies.
In fact, CBO data for 2007 (the most recent year available) suggest that 80 percent of U.S. households pay federal tax at a lower rate than the Tax Foundation’s estimated “average” federal tax obligation (see graph).