Skip to main content.

Municipal Market Update: Tax Freedom Day 2017

Download Article PDF

Eagle

Doing your taxes is never fun, but in 'honor' of the stressful tax season, enclosed is our annual update of Tax Freedom Day from the Tax Foundation. Tax Freedom Day calculates the point each year when, on average, Americans stop working to fulfill their tax obligations and start working for themselves. This year the nationwide average falls on April 23rd, 113 days into the year. In 2017, Americans will pay $3.5 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total tax bill of $5.1 trillion, or 31% of national income. If you include federal borrowing, Tax Freedom Day occurs 14 days later, on May 7th. As you can see in the chart below, May 1st, 2000 was the latest Tax Freedom Day ever. Source: Tax

How has Tax Freedom Day® changed over time?

how has tax freedom day changed

Source: Tax Foundation calculations.

When Does Tax Freedom Day® 2017 Arrive in Your State?

Tax Freedom Day 2017

Notes: Each state's Tax Freedom Day® is the day when taxpayers in the state have collectively earned enough money to pay their federal, state, and local tax bill for the year.
Source: Tax Foundation, Tax Freedom Day® 2017

Depending on what state you live in, Tax Freedom Day could be as late as May 21st (the date for those unfortunate enough to be living in Connecticut). In 2009, the average Tax Freedom Day was as early as April 10. The top income rate rose to 39.6% in 2013. When the top income bracket is combined with the ACA Medicare Net Investment Income of 3.8%, and some state income taxes, the highest income rate can be as much as 56%. Americans will spend more on taxes in 2017 than they will on food, clothing and housing combined.

Tax Spending vs. household spending

Source: Bureau of Economic Analysis; Tax Foundation calculations. 

We remain constructive on the tax exempt sector in 2017 as it continues to provide strong tax-adjusted income and is an attractive fixed income relative value play. The current yield for a 30-year AAA-rated muni is 2.91%, which is equal to 5.14% taxable equivalent for the highest earner. 

2 Year 5 Year 10 Year 30 Year
AAA Tax-Exempt Yield 0.96% 1.41% 2.07% 2.91%
Taxable Equivalent* 1.70% 2.49% 3.66% 5.14%

*Highest equivalent of 43.4% with Medicare net investment income tax.
Source: AAA Tax exempt yield is from Municipal Market Data. Date pulled 4/17/17

While the remainder of 2017 will be a challenging investing environment, with significant bouts of volatility for fixed income due to policy risk surrounding tax reform and uncertainty surrounding interest rate direction, we expect demand will remain solid for tax exempt income due to high tax rates and low yields for global fixed income. Enjoy your Tax Freedom Day! 

The assertions in this perspective are Seix Investment Advisors’ opinion. 

Investment Risks: All investments involve risk. Debt securities (bonds) offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. Generally, a portfolio’s fixed income securities will decrease in value if interest rates rise and vice versa. A portfolio’s income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. There is no guarantee a specific investment strategy will be successful. 

This information and general market-related projections are based on information available at the time, are subject to change without notice, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. Seix Investment Advisors does not provide legal, estate planning or tax advice. Investors are advised to consult with their investment processional about their specific financial needs and goals before making any investment decisions. 

Past performance is not indicative of future results. 

©2017 Seix Investment Advisors LLC. Seix Investment Advisors is a registered investment adviser with the SEC and a member of the RidgeWorth Capital Management LLC network of investment firms.