Thursday, 19 May, 2005

Tax Freedom Day?

The Round Rock Leader today reprinted Doug Bandow's editorial Paying taxes for months on end, in which the author explains Tax Freedom Day and describes how much of our working lives we spend on taxes.  The average is about three and a half months, and varies from about three months to a little over four months depending on what state you live in.  I heartily agree that government costs too much, but I disagree strongly with some of Bandow's points and the formula that the Tax Foundation uses to calculate Tax Freedom Day.

Early in the article, Bandow states:

The Bush tax cuts pushed back Tax Freedom Day from May 3 in 2000 - a record, exceeding the tax burden even during World War II.

That statement felt wrong to me.  Wouldn't it make more sense to base the calculation on the total cost of government rather than on the amount of taxes collected?  Apparently not.  The Tax Freedom Day Web site has the following to say about how Tax Freedom Day is calculated:

Tax Freedom Day answers the basic question, “What price is the nation paying for government?” We divide the most authoritative figure for tax collections by the most authoritative figure for income

Now I'm no economist, but it seems to me that the real price we're paying for government should include some provision for paying off the accumulated national debt of almost 8 trillion dollars (National DebtClock).  At minimum, it should include the current year's budget deficit of over 500 billion dollars.  Not including the amount we've borrowed is irresponsible at best, and could be viewed as dishonest.  If you include the 20% current year budget deficit, Tax Freedom Day moves to about April 25 this year.

The Tax Foundation's About Us page says, in part:

As a nonpartisan educational organization, the Tax Foundation has earned a reputation for independence and credibility. However, it is not devoid of perspective.

I don't know enough about the organization's history to say whether it deserves the nonpartisan description, and I'm happy to see that they don't claim to be totally objective.  However, I don't see how they can claim credibility when they make the fundamental error of assuming that the price we're paying for government is limited to the amount of taxes collected rather than the amount spent.