By Alison Felix and Kate Watkins – FEDERAL RESERVE BANK OF KANSAS CITY
The U.S. population is getting older. In 2011, the first members of the baby boom generation turned 65, an age typically associated with retirement. By 2030, almost 19 percent of the U.S. population will be 65 or older, up from just over 13 percent today. This aging of the population has important implications for state tax revenue because as the baby boom generation retires, the nation’s labor force participation rate is expected to decline and, with it, income and spending. Most people earn less and spend less during retirement, suggesting that an aging population could reduce government revenue, particularly from sales taxes and individual income taxes. These sources of revenue make up more than 80 percent of total state tax collections.
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The Impact of an Aging U.S. Population on State Tax Revenues
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source: http://www.kansascityfed.org/publicat/econrev/pdf/13q4Felix-Watkins.pdf