The Impact of an Aging U.S. Population on State Tax Revenues

The US population is getting older. 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. This article examines the effects of aging populations on tax revenue across all 50 states. Isolating the effect of demographic change on tax revenue -- by holding constant all other factors (such as likely income growth and other variables) -- the results suggest that the aging of the population alone from 2011 to 2030 will reduce both income tax and sales tax revenue per capita in nearly every state. In fact, the analysis shows that if the US population in 2011 had already had the age composition that is projected for 2030 -- that is, with a greater proportion of retirees -- state tax revenue would have been lower by $8.1 billion, or 1.1%.