Junjie Guo and Ananth Seshadri
Executive Summary:
- In the last 20 years, U.S. states with larger income tax cuts for seniors (aged 65 and above) experienced faster growth in population, real GDP, and employment.
- The finding is robust when we control for concurrent tax changes for other groups, e.g., non-seniors (aged 64 and below), taxpayers at the bottom 90% of the national income distribution, and taxpayers at the top 10% of the national income distribution.
- We estimate that each percentage point reduction in a state’s net income tax rate for seniors is associated with an increase in the annual growth rate of state population, employment, and real GDP by around 0.2 percentage points.
- The new policy in Wisconsin, where retirees aged 67 and up are allowed to exclude up to $24,000 in retirement income from state income taxes, is estimated to raise the annual growth rate of the state’s population, employment and real GDP by around 0.13 percentage points.