Maryland Should Reform Tax Breaks to Target Aging Adults Facing Financial Hardship
Like the rest of the nation, Maryland has seen its workforce age over time. Our labor force supports children, elders, and other dependents within our population. Combined with slowing population growth and people working longer in life, this is leading to changes in Maryland’s economy and increasing the need for state services like long-term care. We should reform the tax breaks Maryland offers aging adults to help the state provide these essential services while continuing to protect older Marylanders who struggle to make ends meet.
As our population continues to age, Maryland is likely to see both increased need for state services and slower growth in the revenues that make those services possible. Within the labor force, age structure has a significant impact on productivity. Research shows that a labor force that has a high concentration of very old or young workers will be less productive than one that is middle-aged. Demographic changes between tax years 2010 and 2014 accounted for a reduction of $109.3 million in state revenue. As Maryland’s population continues to grow older, we will continue to see lower productivity, leading to slower economic growth and slower growth in state revenues.
Additionally, we will see an increasing loss of state revenue due to the tax breaks carved out for retirees and older adults. Both the federal and Maryland tax codes give preferential treatment to older individuals through tax breaks such as exemptions for pension and Social Security income.
At the same time, the state is experiencing greater income inequality across the age spectrum. A larger share of income growth is going to older Marylanders. Over the past decade, inflation-adjusted earnings for Marylanders under 45 has stagnated. Additionally, inflation-adjusted incomes for Marylanders under 35 have fallen since 2000. A larger share of income growth is going to older segments of the population.
As tax breaks for seniors are costing our state increasing amounts of revenue, Maryland must expand services that support the needs of an aging population while also maintaining core investments in things like education, healthcare, and infrastructure. Policymakers should reconsider the tax advantages offered to Maryland’s senior citizens – many of whom are wealthy. Smart reforms will strengthen the state’s ability to provide services like long-term care while continuing to protect aging Marylanders who struggle to afford necessities. Possible policies to ensure that tax breaks are better targeted toward low-income seniors include:
Establishing an income limit Rather than grant tax breaks to seniors at all income levels, they should be structured to focus on low-income seniors. An income limit would help target the benefits of retiree tax breaks to seniors who struggle to make ends meet.
Limiting Deductions Maryland offers much larger income tax deductions for seniors than other states. In 2015, a married Maryland couple over 65 could deduct as much as $58,400. A lower cap would help target the benefits to low-income seniors while preserving revenue the state needs to support public services.
