April brings spring showers, but it also brings a date a little less pleasant -- tax day. For those who procrastinate, the next few days will be worrisome. For those who filed their taxes early, the refund may be in the mail, but that doesn't mean your concerns are over.
While April 15 may receive the bulk of the attention, another date should concern every tax payer. Tax Freedom Day falls on April 9 this year, which means Americans will spend more than three months working before they earn enough to pay their federal, state, and local taxes.
Individual income taxes represent the largest component of Americans' tax bills. Some taxes -- such as sales and excise taxes -- are less apparent to the taxpayer than income and payroll taxes because they can be difficult to factor in.
Tax Freedom Day arrives a day later in 2010 than it did in 2009, but more than two weeks earlier than in 2007. The slow economy combined with the tax cuts enacted by President Bush, as well as some one-year tax cuts signed by President Obama were able to keep this year's tax burden low. Despite these tax reductions, Americans will pay more taxes in 2010 than they will spend on food, clothing, and shelter combined.
However, Tax Freedom Day does not take into account our country's massive deficit. If the federal government was planning to collect enough in taxes during 2010 to finance its spending, it would have to collect another $1.3 trillion in taxes - stretching Tax Freedom Day to May 17, adding an additional 38 days of work for every taxpaying American.
Also, the recently passed health care legislation will add two to three days to the total once all of the new taxes are phased in.
Government spending has already increased by an amazing factor in the past few years -- and with it the size and scope of the federal government. But next year there also will be substantial tax increases for a great many Americans.
This is notably due to the expiration of the Bush tax cuts. The top personal income tax rate will rise next January 1 to 39.6 percent from 35 percent, a hike of nearly one-eighth. The dividend tax rate also will rise to more than 2½ times the current 15 percent. The capital gains tax rate will rise by a third, to 20 percent.
Meanwhile, a number of tax deductions from last year have expired due to the failure of Congress to extend them despite bipartisan pleas to do so. The tax deduction for state and local sales taxes is one; the deduction for college tuition and fees is another.
In modern times, the Kennedy, Reagan, and Bush tax rate reductions helped spur economic growth. The tax increases looming on our horizon will have the opposite effect. Americans are worried about the increasing size and spending of the federal government. As we approach tax day -- and our country takes stock of our financial situation -- we are reminded more than ever of the necessity of keeping federal spending in check.