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Federal Reserve Bank of Kansas City
Economic Review
The impact of an aging U.S. population on state tax revenues
R. Alison Felix
Kate Watkins
Abstract

As the baby boom generation retires, the nation’s labor force participation rate is expected to decline. And since most people earn less and spend less during retirement, the aging of the U.S. population will likely reduce income and sales tax revenue per capita for state governments. Felix and Watkins draw from data on different age groups’ earning and spending patterns to assess how projected changes in the age distribution across the American population are likely to affect earning and spending—and therefore state revenue from income taxes and sales taxes. They find that demographic change will have a significant impact. Had the population’s age composition in 2011 already resembled what is projected for 2030—that is, having a greater proportion of retirees—state tax revenue would have been reduced by $8.1 billion, or 1.1 percent.


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R. Alison Felix & Kate Watkins, "The impact of an aging U.S. population on state tax revenues" , Federal Reserve Bank of Kansas City, Economic Review, issue Q IV, pages 95-127, 2013.
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Keywords: State tax; Income tax; Tax revenue; Population
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