The Economix blog at The New York Times today offers an interesting take on Tax Freedom Day, the annual event sponsored by the Tax Foundation that sets a hypothetical day when the average American taxpayer has worked enough to cover his or her tax liability for the year.
Tax Freedom Day is catchy, but it's not a useful way of looking at tax policy, as the Center on Budget and Policy Priorities points out in an annual release debunking the Tax Foundation's methodology.
Economics professor Nancy Folbre offers a fresh take on the issue by calculating the average taxes spent on a person by the 21st birthday and the time it would take to pay back that investment.
"In 2004, net government expenditures on individuals up to age 21 came to $208,552 per person. I assume that average amounts spent on individuals of different ages represent a reasonable estimate of expenditures on an average individual over time.
"I treat this accumulated expenditure as a debt that the average taxpayer starts to repay at age 21, at a real rate of interest of 3 percent. I assume that individuals repay this debt by forking over 27 percent of their income to the government every year, as per the Tax Foundation’s estimates. I also assume they start out earning average wages of a full-time employee for 2004, then enjoy real wage increases of 5 percent every year.
"In this hypothetical scenario, it takes more than 17 years for average taxpayers simply to repay what older taxpayers invested in them."
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