Pennsylvania’s population is aging. Who will pay for it?

Ryan Heenan
Ryan Heenan
Published on January 20, 2018

Pennsylvanians are getting older, more expensive — and less taxable. The commonwealth’s senior population is growing at a rate 20 times faster than Pennsylvania’s overall population. By 2025, more than one in five Pennsylvania residents will be 65 or older, according to population projections from the U.S. Census and the Pennsylvania State Data Center, while the number of people below the traditional retirement age decreases. Pennsylvania’s population is projected to grow by 4 percent from 2015 to 2025, but the number of residents who are 65 or older is expected to grow by over 30 percent.

The increasing senior population will swell the demand for nursing homes, senior centers, transportation services, and other programs offered by state and county governments. The annual cost of providing senior programs is increasing more than twice as fast as the revenue sources that fund them, according to the Pennsylvania Independent Fiscal Office. The increased demand and costs also will come as seniors retire and stop paying state and local income taxes. In Pennsylvania, retirement income — such as pensions and Social Security — is not subject to the state’s 3.07 percent income tax. That means that income tax collections will slow as more people leave the workforce and live off retirement income.

Meanwhile, older people tend to shift their spending habits away from durable goods to services, Price said. That means sales tax collections will suffer, since durable goods are more likely to be subject to Pennsylvania’s 6 percent sales tax, while services are less likely to be subject to the tax, Price said.

Raising property taxes — nearly a third of which are currently paid by homeowners who are over 65 — is often politically unpopular because it affects seniors who live on fixed incomes and don’t have children in schools, which consume the bulk of the tax revenue.

Which begs the question – who will pay? We expect a few ways that these financial woes will be mitigated.

First, an ever-increasing retirement age will contribute to the tax pool. With the older population staying in the workforce longer, they will continue adding taxable income to the state. Availability to work from home or work reduced hours have formed a new subset of “semi-retired.”

Next, a healthier population can reduce overall care costs. While the quantity of 65+ individuals increases, the average care per individual can decrease with education for a healthier, more sustainable lifestyle.

In the real estate world, we expect booming development of retirement and assisted living communities. These communities often foot a large real estate tax bill, enabling for better schools, facilities and programs for all ages.

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Source: Philadelphia Inquirer; 1/16/2018, Associated Press 5/7/17

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