As the Nation Ages, Taxes Shrink

The cohort of 55-plus represents more than 77 million individuals. As they age and move out of full time income jobs, the ability for states to tax them disappears. This presents a major challenge that hasn't been addressed because states are focusing on just a couple years at a time. With declining tax bases, we are unlikely to see the smart city innovation that we hope is on the horizon.

But the repercussions of an aging population don’t end with growing expenses.

“I don’t think that people think about the revenue side of aging very often,” said Susan Brower, state demographer in Minnesota.

As people age, they are inclined to earn less, and as a result they bring in less money for states through income taxes. They’re also inclined to spend less, which can decrease sales tax revenue. According to a paper co-authored by Alison Felix, vice president of the Federal Reserve Bank of Kansas City’s Denver Branch, “On average, spending by those younger than 25 and those older than 75 was slightly more than half of that of middle-aged consumers.”