Our office routinely makes mention of the slower economic and revenue growth in the coming decade as the Baby Boomers age into their retirement years. I just wanted to share a couple graphs on the matter, taken from some work our office did for the CFO and budget folks across state agencies. Using the consumer expenditure survey (CEX) data by age from BLS, the following shows a rough approximation of how income and spending change as people age. More importantly for our office’s work, and our counterparts in other states as well, how taxable income and spending patterns change with age. This income-sales tax comparison post from a year ago, goes into much more depth on these changes and also revenue growth and performance, for those interested in more.
In terms of what older households (technically consumer units in the CEX parlance) do and do not spend money on, the following shows the change in spending across major categories for retirement age folks compared with those in their late 50s and early 60s (where about half of the Boomers are today). Overall, spending falls. A lot. In come categories, shockingly so. 27 percent decline across all categories, and 20-40 percent for most categories. The only categories to see an increase are health care, reading and cash contributions (gifts, donations, etc).
Generally, one tends to think of these spending declines as a sales tax state problem. Sure the income declines will affect Oregon, but these various spending declines are not discussed as much given we do not have a sales tax. However, they will certainly impact a lot of the state’s various revenue streams, what are largely called, Other Funds. These are not General Fund revenues (mostly personal income and corporate excise taxes) or Federal Funds (grants, etc). These include licenses and fees (DMV, fishing, hunting, etc), gas taxes, tuition (not many continuing education courses or college age children), alcohol and tobacco sales and the like. Our office has the general fund revenue outlook pegged around 10 percent per biennium over the extended horizon, compared with previous expansions at more like 16 percent, but the other revenue streams for the state will face downward pressure as well as the Baby Boomers continue to age into retirement and their spending patterns shift. These changes will not occur overnight, but over the next 5-10 years, this is certainly the expectation moving forward.