Today Is Tax Freedom Day

Today (the 5th) is Tax Freedom Day. According to the annual announcement by the Center for Free Enterprise (CFE), income earned starting today, April 5, becomes money people can spend on themselves. In effect, all income earned up to yesterday was paid in taxes. In that sense, April 5 is Tax Freedom Day for 2022.

Tax Freedom Day, which the Center for Free Enterprise (CFE) announces every year, differs from year to year. That is because it is calculated using the expected taxes and income for the relevant year. This year’s Tax Freedom Day, calculated using projected income and taxes, is April 5. That means income earned through April 4 was used to pay taxes. Income earned from April 5 onward is money people can use for themselves.

Tax Freedom Day refers to the number of days out of the 365-day year that people work to pay taxes. Of the 365 days, 94 are days worked to pay taxes, while income earned during the remaining 271 days belongs to the individual. When taxes increase more than income, Tax Freedom Day is pushed back accordingly.

In Korea, taxes have been rising faster than income, and as a result Tax Freedom Day has been getting later each year. Tax Freedom Day in 2022 was pushed back by two days compared with 2021. Tax Freedom Day was April 3 in 2021 and April 1 in 2020. As this shows, Tax Freedom Day has been moving later every year. This means taxes are increasing faster than income and that the number of days people must work to pay taxes is growing.

Tax Freedom Day was March 25 five years earlier, in 2017. In just five years, it has increased by as many as 11 days. In other words, the number of days people work to pay taxes to the government has risen by 11. That is a very large increase. Given that there has been no previous case of such a rapid surge, the past five years were a highly unusual period of tax increases.

In 1997, Tax Freedom Day was March 13. Twenty years later, in 2017, Tax Freedom Day was March 25. That means the number of days people had to work to pay taxes increased by 12 over those 20 years. Considering that the number of days required to pay taxes increased by 12 over 20 years, while it rose by 11 in just the past five years, it is clear that the pace of tax increases over the last five years was extremely fast.

It is worth comparing which administrations raised taxes the most relative to income. Looking at the period since 1993, Tax Freedom Day was delayed the most under the Moon Jae-in administration. In other words, that was the period when taxes rose the most relative to income. During the five years from 2017 to 2021 under the Moon Jae-in administration, the number of days people worked to pay taxes increased by 11.

The next largest increase came during the Roh Moo-hyun administration, from 2003 to 2007, when it rose by 6 days. Under the Kim Young-sam and Kim Dae-jung administrations, it increased by 5 days each, and under the Park Geun-hye administration, it increased by 2 days. By contrast, there were also periods when Tax Freedom Day came earlier. Under the Lee Myung-bak administration, Tax Freedom Day actually moved up by 4 days. That means income growth exceeded tax growth by that much.

Rising taxes reduce the resources available for the public to spend. It also means the share of consumption undertaken by the government increases. Compared with individuals spending carefully and frugally, government spending is more prone to waste. Therefore, tax increases should be restrained in accordance with law and principle. Since raising taxes reduces the public’s real income and can also harm the economy, both citizens and government officials should take care to ensure that Tax Freedom Day is not pushed back any further.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 오늘은 세금해방일

Author: Sung-no Choi

Date: 2022-04-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24646