Last Saturday (3rd June, 2006) was Tax Freedom Day (TFD) for the UK. I take a certain interest in this, as I actually calculate TFD for the United Kingdom. For those of you who don’t know what TFD is, here is a brief explanation.
Assume that from 1st January every year, all the money everyone earns is paid over to the government. When have we all paid off our taxes and can start keeping some money for ourselves? In the UK and in 2006, this is 3rd June – Tax Freedom Day. (If you want a technical version, how about: Tax Freedom Day takes the sum of all taxes in an economy – direct, indirect, corporate and so on – and relates them to a measure of national income, in this case net national income or NNI. The resulting percentage is then expressed as days of the year.)
The main point about TFD is that it is a very easy and attractive way of illustrating the tax burden. In other words, it is a gimmick. This is why it is hated by finance ministries and revenue departments everywhere. Here in Britain, the Treasury has taken to trotting out a spokesman who every ear huffily declares that the Treasury does not recognise the concept of Tax Freedom Day and that everyone is much better off since 1997.
That the Treasury doesn’t like TFD is its prerogative. But to cclaim thate veryone is much better off is a non sequitur. If, for instance, the tax burden had doubled over the past nine years, but wages had risen, everyone would indeed be better off – but they would be paying twice as much tax relative to income as before!
The Tories have said that they will make Tax Freedom Day a public holiday. That is nice. But it would be far better if they committed themselves to making sure that Tax Freedom Day falls earlier and earlier in the calendar.
In the United States, Tax Freedom Day fell on 26th April. In Canada it falls in late June. In Israel (originally calculated by your truly) it is in early August. And in my native Sweden, it will be 8 August. Taxes are not the reason why I moved to Britain, but they would have been a very good one.
(Originally posted 7th June, 2006)