Tax Freedom Day
11/06/2008
You may have noticed your wallet feeling a little heavier lately. If you’re wondering why that is, it’s because you’ve just earned your first wages of the year.
Confused? So are most people.
June 2nd was ‘Tax Freedom Day’ of 2008 – the day of the year when the average worker has paid everything they owe in tax and is now earning for themselves.
Of course, this doesn’t literally mean you’ve paid all your taxes. It’s a theoretical date by which, if we were to pay all annual taxes up front, we would have paid them off. That’s just over five months of the year spent paying taxes – 40% of our total incomes, on average.
How is it calculated?
Calculating the date of Tax Freedom Day isn’t an exact science, because it takes into account a wide range of factors, many of which are hard to define. The Adam Smith Institute, the economic think tank who (among other things) calculate Tax Freedom Day in the UK, accept that the actual date could come a few days before or after the ‘official’ date.
The calculations do not just include the tax and National Insurance taken straight from your pay packet – they also count VAT, fuel tax, alcohol and cigarette duties, airline tax, car tax, and any other tax added on to the actual price of goods and services in the UK.
Of course, people pay different amounts of tax depending on how much they earn, and how many taxable goods and services they use. Tax Freedom Day is taken as an average of this, based on the total population and the amount spent on tax as a whole.
How accurate is Tax Freedom Day?
There are a few issues which make the exact date of Tax Freedom Day difficult to pin down.
Government borrowing
Not all Government spending comes from tax – much of it comes from borrowing from other countries. The UK Government have what is known as a ‘budget deficit’ – meaning the UK owes more money than it is owed – estimated to be around £43bn for the 2008/2009 financial year.
This debt ultimately needs to be paid back, and it will most likely be funded by higher taxes. Because this is essentially a ‘deferred tax’, the Adam Smith Institute do not include Government borrowing in their official figures for Tax Freedom Day – but they state that if they did, Tax Freedom Day would in fact fall on 14th June, almost two weeks later.
‘Stealth taxes’
The current Government have been accused by many of charging ‘stealth taxes’: taxes which are hard to spot or particularly hard to understand. Many believe the Government have deliberately introduced these to increase their tax income without angering the general public.
By nature, these stealth taxes are difficult to keep track of. However, the Adam Smith Institute detects them and includes them in their figures.
Other facts about Tax Freedom Day
- Tax Freedom Day has been a lot later in previous years. In the early 80s, it came as late as June 20th – a whole 173 days’ worth of taxes, as opposed to 2008’s 155 days.
- It’s also been much earlier – Tax Freedom Day 1965 was 27th April – just 117 days spent paying taxes.
- The Adam Smith Institute states that if Government spending had grown in line with inflation since 1997, we could have abolished income tax, corporation tax, capital gains tax and inheritance tax, leaving the taxpayer £200 billion better off.
Carlton House, Vere Street, Salford M50 2GQ. Company registration No. 4348410. Registered in England and Wales
