Tax preferences, fairness, and the elderly: a comparative analysis of tax liabilities

In recent years, there has been a growing debate about the extent to which our elderly citizens pay federal income taxes in relation to the remainder of the population. The rapid growth of the elderly population and the accompanying growth in federal expenditures on their behalf lead some tax policy makers to call for increased burden-sharing by the elderly. In 1989, the Medicare Catastrophic Coverage Act increased federal income taxes for most people over the age of sixty-five. The act was quickly repealed, however, amid charges that the elderly were being forced to pay an unfair share of the total tax burden.

The primary purpose of this research was to determine if the average tax liabilities of elderly individuals differ from non-elderly individuals controlling for differences in economic or expanded income. Panel data from an Internal Revenue Service random sample of taxpayers for 1979 through 1984 was used to simulate the tax law for 1989. The primary research question was addressed for both 1984 and 1989. In addition, data from this panel was used to determine if the elderly differ significantly from the non-elderly in terms of their source of income and types of deductions. Finally, this research examined the impact of two alternative tax proposals on the federal income tax liabilities of the elderly in relation to the nonelderly.