Tax Reform, Revenue Windfalls, and Elderly Taxpayers

Abstract

Federal and state income tax reform will have far-reaching effects on the distribution of income and tax burdens in the United States of America. It was expected that tax reform would shift the burden of taxation from individuals to corporations and from lower to higher-income pérsons, but it has also shifted the aggregate burden of federal income tax from the general population to US citizens over the age of sixty five. Total federal income taxes for the general population declined by nearly $36 US billion, but increased for older citizens (that is, those over the age of sixty five) by nearly $3 US billion. The shift in taxes is progressive, however, in that low-income older Americans pay less federal income tax and those with high incomes pay more. At the same time, state income tax payments increased for most US citizens as a result of federal tax reform, but more so for older citizens than for the general population. These ‘windfall’ increases in state income taxes added to the increased federal income tax borne by upper-income and middle-income older persons, and partially or fully offset the reduction in federal income taxes for lower-income older persons. However, the income tax burden on the elderly population remains relatively low, with 75% of the elderly paying less than 5% of income in federal income tax and over half paying less than 1%, with most of these not filing tax returns at all.