Monday, May 30, 2011

Calculation re Tax Freedom Day seems to be flawed

According to the Adam Smith Institute - and as faithfully repeated without question by the media - today, 30 May 2011, is 'Tax Freedom Day'.

30 May is the same date as they reported in 2010 but the Institute has issued a press release that suggests there is a 3 day difference! (The 3 day movement was actually from 2009 to 2010). Here is the Institute's own record of the dates over the last ten years.
I've never been a fan of this calculation of the notional day in the year when the average person has earned enough to pay his or her annual tax bill. The concept of Tax Freedom Day was developed in 1948 by a Florida businessman. The Adam Smith Institute's records of Tax Freedom Day date back only to 1963.

I've checked back and can find no reference to the 2010 date being revised. All reports show it as being 30 May - the same as this year. How odd then that The Institute explain why Tax Freedom Day is 3 days later than in 2010. Apparently it is because the government has raised VAT. The Telegraph notes that:
"Increased National Insurance Contributions (NICs) and restricted personal allowances added to the burden."
It seems to me that either the calculation of Tax Freedom Day is flawed - as it doesn't reflect the tax increases mentioned in the reports, or else the calculation evidences the absence of any overall increase in the taxes paid by the average person compared with last year.

What do you think?


  1. Why have you "never been a fan", Mark? Is it merely a statement of neutrality or do you have a reason for being hostile towards it? Curious.

  2. Hi Mark,

    The apparent discrepancy is because of the fact that we have to use government figures which are revised every year. So, for 2011, we have to use government projections for tax revenues; next year those will be updated along the government's new estimates for 2011; and in 2013 the government will release the outturn figures for 2011 (which may be revised again in 2014).

    In the case shown here, this time last year the govt's projections pointed to TFD falling on May 30th; the current estimates mean that this date was revised backwards. It's possible that the 2011 TFD will be adjusted when new figures are released, and it could go forwards or backwards. We make sure to use the most recent govt data available.

    Thanks for flagging this up – we'll add an explanation of this to the TFD page tomorrow.

  3. Thanks Sam.
    I'm pretty sure I'm reasonably intelligent but I'm afraid I don't understand your explanation.
    Last year you reported TFD was 30 May. This year you're reported TFD is 30 May. You've also said it's 3 days later than last year. I don't get it. Sorry.

    I think what you might be saying is that last year you said 30 May but now you've recalculated it as 27 May for 2010 which is 3 days earlier than you previously thought and 3 days earlier than this year.

    BUT what that also seems to tell us is that the first draft figure isn't reliable and shouldn't be reported as if it were.

  4. @Christie Malry

    I"ve never been a fan as I've never felt comfortable with the whole concept. It seems to involve taken macro economic data and relating this to a mythical average person.

    Must admit my cynicism seems to be justified based on what I've learned this year!