Yesterday, the nonpartisan, Washington, D.C.-based Tax Foundation announced its estimate that “Tax Freedom Day” this year will occur on April 21, three days later than in 2013. (The Tax Foundation’s entire published analysis is available at the link below.)
As the Tax Foundation explains, Tax Freedom Day (TFD) is “the day when the nation as a whole has earned enough money to pay its total tax bill for the year. . . . In 2014, Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2 percent of income.”
Not surprisingly, this burden is not borne equally by all Americans, and regional factors play a significant role in determining when TFD comes for individual taxpayers and households. The Tax Foundation puts it this way: “The total tax burden borne by residents of different states varies considerably due to differing state tax policies and because of the progressivity of the federal tax system.”
Yesterday afternoon, the National Institute for Labor Relations Research took aggregate state personal income data for 2013 as reported by the U.S. Commerce Department and the estimated 2014 TFD’s for the 50 states as reported by the Tax Foundation to calculate average TFD’s for the 24 Right to Work states and the 26 forced-unionism states.
The Institute estimates that this year residents of forced-unionism states will have to fork over 32.1% of their total personal income in taxes, a 5.4% higher share than the national average and a 12.5% higher share than the Right to Work state average. TFD in forced-unionism states as a group won’t come until April 27, or six days later than the national average. Meanwhile, TFD in Right to Work states as a group will come later this week on April 14, or seven days earlier than the national average.
TFD consistently comes significantly earlier in Right to Work states than in forced-unionism states in part because state and local taxes typically consume a smaller share of income in jurisdictions where unionism is voluntary.
Another advantage for Right to Work states is their lower living costs. As the Institute reported in February, data from the Missouri Economic Research and Information Center indicate that on average forced-unionism states were 21% more expensive to live in than Right to Work states in 2013. When cost of living differences are taken into account, the average disposable income (as well as total personal income) per capita in Right to Work states is somewhat higher than in forced-unionism states.
However, progressive federal income taxes are levied on nominal, rather than cost of living-adjusted incomes. Consequently, households in high-cost forced-unionism states like California, New York, New Jersey, and the New England states get socked twice. They have to fork over more for housing, food, energy, health care, and other necessities. And then they have to pay the same income tax rate as a household in a low-cost Right to Work state like Texas or North Carolina making the same nominal income, even though that nominal income goes much further in the Right to Work states.