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"Tax Freedom Day" comes earlier for the rich than the poor

The day when someone in the richest 10 per cent stops contributing to tax is nearly a month earlier than someone in the poorest 10 per cent. 

The day when someone in the richest 10 per cent stops contributing to tax is nearly a month earlier than someone in the poorest 10 per cent.
George Osborne holds freshly minted coins during a visit to the Royal Mint in Llantrisant, Wales on March 25, 2014. Photograph: Getty Images.

Today the Adam Smith Institute is marking this year’s "Tax Freedom Day". For those unfamiliar with the concept, "Tax Freedom Day" is defined as "the day when average Britons stop working for the Chancellor and start working for themselves". In other words, tomorrow marks the day where every penny you earn goes straight into your pocket, and not to the pesky taxman. Sounds good right? Well it gets even better. This year your "freedom" comes three days earlier than last year, three whole days.

If you’re not cartwheeling round the room at this unexpected financial boon, it’s possible you’ve worked out that Tax Freedom Day is, in fact, utterly meaningless. The celebratory nature of the Day only highlights that it is an obvious and cynical wheeze, intended to frame tax, in all forms, as a malign force. Tax is no longer a mechanism to provide your children with an education, to protect you from illness, or to make sure the roads are paved. Instead it is an imposition, the government taking what is rightfully yours.

The concept of Tax Freedom Day becomes even more bizarre when you examine how it is measured. According to the Adam Smith Institute it is "calculated by comparing general government tax revenue with Net National Income (NNI). The total of all government tax revenue – direct and indirect taxes, local taxes and National Insurance contributions – is calculated as a percentage of NNI at market prices. This year it comes to 41.09%. That percentage is then converted to days of the year, starting from 1 January."

In other words, the date of Tax Freedom Day is found by determining the fraction of the UK economy "captured" by taxation. This fraction is then used to determine a date in the calendar that is an equivalent fraction of the year.

The question is, does this method work, and can it really measure when an "average taxpayer" can expect to be "free" of taxation? The answer is, not really. For a start, nations clearly don't pay personal income tax.

Despite this, a more relevant Tax Freedom Day can be worked out. More precisely, Tax Freedom Days can be worked out. Equality Trust analysis has found that when all taxes on income are taken into account, the richest 10 per cent pay 35 per cent of their income in taxes. However, the poorest 10 per cent actually pay more – 43 per cent. Taken as a fraction of the year, this means that the day someone in the richest 10 per cent stops contributing to tax, or their "Tax Freedom Day", is actually on 9 May. The poorest on the other hand are still waiting for their Tax Freedom Day, which will not come until 5 June, nearly a month after the richest 10 per cent. 

In this sense, Tax Freedom Day can actually teach us something. By at least one important measure, our tax system is still hopelessly regressive. People may not always find themselves hugely motivated by the prospect of paying tax, but it is an important and widely accepted part of our life. We pay tax to receive certain public services, many of which have a social value far greater than their financial cost. Tax Freedom Day seeks to pervert this obvious truth by convincing the public that tax only harms them, and that it can be avoided without cost. What we need is not to demonise all forms of taxation, but to have a clear and honest public debate on whether our tax system is fair, whether it protects the most vulnerable in society, and whether it really places the greatest burden on those with the broadest shoulders.

John Hood is media and communications manager at The Equality Trust, where this piece originally appeared.