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 policymakers 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 The act was quickly repealed; however, amid charges that the elderly were being forced to pay an unfair share of the total tax burden.; The primary purpose of this research was to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 non-elderly.; An ordinary least squares regression analysis was used to test for significant differences in average tax liabilities after dividing observations into several income groups. This methodology was used to compare tax liabilities for 1984 and 1989 and liabilities under the two alternative tax laws. Logistic regression was applied as a means of discriminating between the elderly and the non-elderly based upon selected income and expenditure amounts available on the tax return data.; The results of the regression analysis indicated that tax rates for the elderly for 1989 generally exceeded those of the non-elderly at very low levels of income. At higher levels of income, tax rates for the elderly were lower than the remainder of the population and at very high levels of income, average tax liabilities for the elderly again exceeded those of the non-elderly. The same relationship was generally found for 1984, although the extent of differences in tax liabilities was not as great. The two alternative tax proposals, a medicare surtax and an increase in the taxation of social security benefits, resulted in increased average liabilities for the elderly but only in the middle-income ranges.