D.C.’s baby boomers: seniors today are richer than the seniors of early 2000s

US Census estimates that 11 percent of District’s population are seniors—that is approximately 75,000 District residents. The number of seniors in the District moved up and down with the population, but with some lag.  Still, senior population has remained relatively stable, varying between 78,000 during mid-80s, down to 68,000 during mid-2000s, and now back up, although they are now slightly a smaller share of the entire population (through mid-90s, seniors were approximately 13 percent of the population.)  The recent increase in the senior population is most likely coming from baby boomers and they look very different from the seniors of 2000s.

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Seniors today have a different economic profile. As a group, they are richer. In 2001, only 3,196 seniors had incomes ranked among the top ten percent of earners in the city. In 2012, this number more than doubled to 7,541. District population and the number of tax filers also increased during this period, but nowhere nearly by that much. Today’s seniors work into their later years and have more access to capital markets. Income disparities among the District’s seniors have also increased since 2001.

Our tax data suggests the following socioeconomic changes among the senior residents of the District:

  • A larger share of seniors are filing income taxes. In 2001, there were approximately 69,000 seniors in the city compared to approximately 26,000 senior income tax filers (the filer is a senior, or the spouse is a senior, or both claiming to be 65 or older). That was about 39 percent of the total senior population. Senior population in 2012—the last year for which we have tax data—was only 3,200 more than 2001, but the number of senior tax filers the same year had increased by 11,233.

Why would we see such an increase?

First, senior earnings are increasing because they work past retirement age. Tax filing data provide some evidence of this. In 2001, seniors accounted for only 2.8 percent of the wage earnings in the District; in 2012, they account for 6.2 percent. Similarly, seniors only accounted for 6.2 percent of the business income reported in the District in 2001, and in 2012, their share was 21.1 percent.

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Second, the household size for seniors is declining, with more becoming empty nesters. More seniors are filing as singles: In 2012, 60 percent of all senior taxpayers filed under the single filing status—an increase of 7467 compared to the number of seniors who are filing as singles in 2001.

District’s tax filers also increased during this period. We have more residents who are employed (see here, and here), both because of increases in the population, and because more low-income earners file tax returns to take advantage of local earned income tax credit program, which began in 2003 and was expanded in 2006. Still, the changes among the seniors is much more dramatic compared to the entire population.

  • Seniors now account for a larger share of income earned in the District. The share of tax filers, who identify themselves or their spouses as seniors, have remained stable, at 11 to 12 percent, between 2001 and 2012. However, seniors now account for 18 percent of all federal adjusted gross income reported in the District, compared to 12 percent in 2001.

    image006Why are seniors’ income so sensitive to the economic booms and busts as we see in the graph?

    Tax data suggest that capital gains (and losses) are now a larger share of senior income: Seniors accounted for 37 percent of the capital gains in the city in 2012 compared to 21 percent in 2001. This data point us to another shift in the socioeconomic make-up of the seniors. Seniors have more access to capital markets, and the share of seniors on fixed incomes appear to be declining.

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    • Seniors are getting richer relative to all residents, but income disparities among seniors are also increasing. Through 2005, the median income of seniors was similar to that in the entire city. This began changing in 2006, and since then, median incomes among the seniors have been increasing faster. In 2012, senior median income was $52,500, or 19 percent higher than the $44,000 reported among all residents.image010

    The income gap between the poorest and the richest seniors have been widening since 2001. To show this, we compare the income threshold to join the top ten percent earners to the threshold for the bottom ten percent. Usually top ten percent earners make in multiples of the bottom ten percent. In 2001, for the entire city, anyone who earned $110,655 or more (in 2001 prices, not adjusted for inflation) was among the top 10 percent of the earners and anyone who reported less than $7,106 was in the bottom percent, producing a ratio of 15. Among the seniors, the gap was smaller ($125,240 v. $10,248), producing a ratio of 12.

    Since then, the income gap has become greater for everyone ($162,545 v. 8952, with a ratio of 18 in 2012), but for seniors, it is now higher than the entire city. The 90th percentile threshold for seniors increased to $221,137, while the 10th percentile threshold, at $10,192 in nominal terms, is less than what it was in 2001, producing a ratio of nearly 22!image012

    What exactly is this data? We use income tax return data for tax years 2001 through 2012. The analysis is based on federal adjusted gross income. We use this metric because it includes social security and pension earnings (for which District offers a deduction) and it also accounts for the full-year earnings of those who moved into the city in the middle of the calendar year.

Income Characteristics of Same Sex Couples in the District:

The U.S. Treasury’s implementation of the June 2013 Supreme Court’s decision to disallow aspects of the Defense of Marriage Act will allow same sex couples in the District to file Federal income taxes as married couples for the first time for the tax year that ended in 2014 and which are due April 15, 2015. Under previous District and Federal law, same sex couples in the District could file their local District income taxes either as a married couple, domestic partners or as single filers. For Federal taxes, the only option available to them was to file separately as single filers.

This difference in filing statuses that existed between the District and Federal income taxes allows to more easily identify household income characteristics of same sex couples using local District income tax data. This data can be useful to supplement and validate other data that relies primarily on marketing surveys and sample data from the Census. This data is important for social and demographic research and provides key insight for community planners and housing developers for instance.

The following graph and table presents income characteristics for same sex couples compared to all married couples in the District.

Income of Same Sex Couples in the District: Tax Year 2012

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Median Average Highest 10% Lowest 10 %
Same sex married couples $163,436 $220,537 $347,054 $70,763
All married couples $132,220 $242,325 $389,009 $29,469

Key highlights:

  • Median income, measured by Federal adjusted income, for same sex couples was somewhat higher than for overall married couples, $163,436 compared to $132,220 for all couples. In other words, 50 percent of same sex couples earned more than $163,436 and 50 percent earned less.
  • The variation in income among same sex couples was lower compared to the all married couples. There were both fewer low income earners and fewer very high income earners among same sex couples.
  • Higher incomes at the very high end of the income distribution caused the average income for all married couples to exceed same sex couples.

While the data provides some interesting statistics on income for same sex couples in the District, definitive conclusions cannot be drawn from the data as to why there is less variability in the distribution of income among same sex couples compared to all married couples.

The data does not provide information on whether there are a greater percentage of two-income earners among same sex couples as compared to all married couples.  Nor does the data provide information on the age of filers-there could be relatively fewer same sex couples that are either early in their career earnings path or in retirement, when incomes tend to be lower, therefore explaining the lower concentration of low income same sex filers compared to all married couples. Finally since the legislation that enacted same sex marriage in the District, as in most places, is  still relatively new  (legislation was passed in late 2009 and licenses were first issued in 2010), it may be that same sex couples that have married, so far have been concentrated among higher income filers.

As final data becomes available for tax years 2013 and 2014  we will update our findings and see if we can draw stronger conclusions. In the meantime this analysis provides a first snapshot that will be useful to researchers and users of data.

How D.C.’s neighborhoods have changed since 2002

Last week we looked at the types of families living in different neighborhoods in 2013. Today we see how the mix of families in neighborhoods has changed since 2002.

The maps below show that in neighborhoods east of Rock Creek Park, childless singles became a larger share of tax filers while singles with dependents shrank compared to other family types. The biggest changes happened in neighborhoods close to the eastern end of downtown, like Shaw, Bloomingdale, Chinatown, NoMa, and H Street. In these neighborhoods the share of childless singles rose by double-digits and the portion of households consisting of singles with dependents decreased by double-digits.

We see a different story in neighborhoods west of Rock Creek Park. There, the share of taxpayers who were childless singles remained about the same, and even decreased in the far western corner of the District (which includes neighborhoods like AU Park, Spring Valley, Tenleytown, and Cathedral Heights). Meanwhile, there were no significant changes in the share of singles with dependents west of the park.

childless singles changesingles w dep change

How do married couples fit into this picture? People who were married with no dependents became a larger share of households in neighborhoods close to downtown, like Adams Morgan, U Street, Shaw, Logan Circle, and H Street. Married people with dependents became a larger share of households in neighborhoods adjacent to the eastern end of downtown–like Capitol Hill and H Street–as well as farther-out neighborhoods in Northwest, like Foxhall, Palisades, and Spring Valley.

Some people might be surprised to see that neighborhoods like Petworth saw virtually no change in the share of taxpayers who were married with dependents. In fact, the number of married people with dependents around Petworth (zip 20011) did increase, but the share stayed about the same since so many more childless singles moved into the area.married no dep change

married with dep change

This is a lot of information to digest. To get a better sense of neighborhood-by-neighborhood changes, we created the tool below. It shows you the mix of families in different D.C. zip codes in 2002 and 2013. Click on the graph below to access the tool.

Click here or on the graph below to see changes by neighborhood

mix of families tool
What exactly is this data? We used data on people filing local income taxes in D.C. in 2001 and 2012. The addresses listed on this data will typically reflect where people lived in 2002 and 2013. “Childless singles” are people who filed as single and claimed no dependents. “Married with dependents” refers to people who filed as married on the same return and claimed dependents. “Married with no dependents” refers to people who filed as married on the same return and clamied no dependents. “Singles with dependents” are people who filed as heads of household and claimed dependents. We excluded all other types of filers (domestic partners, dependents filing taxes, people with dependents who file as single instead of head of household) from our analysis.

Data on the wages earned by District residents tell a new story

Last week, we noted that the total wages paid in the District are stagnant. This is because average wage and salary earnings in the city are declining.  But our tax collections from wage and salaried District residents–whether the wages are earned in the District or elsewhere–continue to improve.  This we know, because, the amount of taxes withheld from the wages and salaries of District’s residents have been  growing much faster than total wages and salaries paid in the District. Here is the data:

  • Withholding grew by 5 percent in 2014 and by 8 percent on average in the last four years.
  • In contrast, total wages paid in the District to all workers (D.C. residents or not) grew by an average of 2 percent in the last four years, and did not grow at all in 2014.
  • The wages earned by the District residents in the District did slightly better, averaging 4 percent in the last four years, but this is still lower than withholding growth.

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How do we explain this?

The answer is, once again, in the demographic change. In early 1990s, when the nation emerged from the 1991-92 recession rather quickly, the District economy continued worsen: first, residents were still leaving the city and the District’s population continued to decline through 1998. Second, the federally engineered recession that lasted through late 1990s drew businesses away. As a result, the District’s finances continued to worsen even though the general economic climate was improving across the region.

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The trend is now the opposite. District residents’ wage and salary earnings remain robust even though the average wages paid in the city is declining. This is because more DC residents now work outside the District (especially in Maryland and Virginia) and  more DC residents occupy the jobs in the District, reducing the commuter bite out of the income earned in the District. Thus, rather than flocking the suburbs to commute to the jobs in the District, more people are choosing to live in the District, commuting to jobs in Virginia and Maryland.

Charitable giving in the District

Recently, we shared data on contributions by District residents to three different causes identified on tax forms. How about charitable giving in general?

  • In 2012, 109,000 tax filers in the District – about a third of all filers—reported contributing $744 million to charitable causes that are exempted from federal taxation. District residents collectively gave away 4 percent of their incomes.
  • More than a quarter of the tax filers who gave had incomes above $155,000—the threshold for the top ten percent of income in our city. The top-ten-percent collectively accounted for 61 percent of the giving. Nine out of 10 highest income earners gave to charitable causes.

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  • Even the poorest in the District gave, but in smaller numbers and proportions. Nearly 2,000 District residents with annual incomes under $15,000 gave a combined $3.3 million for charitable causes.
  • On average, tax filers, gave about $6,825 (a filer could be single person, a couple, or a family).  Average giving is remarkably stable across the middle of the income distribution, varying between $2,000 and $4,000 per filer. Giving among the richest tax filers on the other hand was $15,500 per filer.

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  • The great recession affected charitable giving. Total giving declined from its pre-recession peak of $811 million in Tax Year 2008 to $630 million in tax year 2010. This is a 22 percent decline. We are yet to catch up with that level, but more tax filers are giving today than any other time since 2006. This is another way of saying more filers are itemizing.

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  • So how do we compare to the rest of the country? We give more than average Americans do, but not nearly as much as we earn. Per capita giving in the District (averaged across all District residents, and not just tax filers) is 1.12 times the national average at $1,174 per year, but our per capita income is 1.71 times the national average.

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Tax filings do not reflect all charitable giving. The National Philanthropic Trust reports that 95.4 percent of American households give to charity. Tax filings underrepresent that figure, especially at the lower end of the income distribution because filers who do not itemize their deductions have no reason to report their charitable giving.

Contributions: who gives?

District income tax forms offer taxpayers three ways to contribute to causes important to the District. These include funds that pay for the Statehood Delegation, cleanup of the Anacostia River, or programs for drug use prevention, especially for the youth. We look at the District tax data to figure out who gives to these funds.

  • In 2013, 3,715 District taxpayers contributed $136,000 to these three causes. The average contribution amount was $37, but most people gave in the $5 to $10 range, and only a handful of people gave in $100s. The biggest contribution was under $2,000.
  • People tend to contribute if they are due a refund–the contributions come out of their refunds. Very few people who owed taxes at the time of filing contributed.
  • The Anacostia Cleanup Fund had the largest take with $60,000 from 2,677 taxpayers. Moreover, most who contributed live by the river.

    Contributions to Anacostia Cleanup Fund 2013
    Contributions to Anacostia Cleanup Fund 2013
  •  Drug Prevention fund took in $49,000 from nearly 2,000 taxpayers and Statehood delegation fund took in $27,000 from about 1,740 taxpayers.
  • The bulk of the contributions came from taxpayers with incomes between $35,000 and $135,000. Taxpayers with incomes under $135,000 were the source of 80 percent of contributions for the Statehood Delegation Fund, and roughly 78 percent of the contributions for the Anacostia Cleanup and Drug prevention funds. It is hard to say why higher income residents are not giving more. It could be perhaps they give to other causes, or because they typically do not have any refunds they could use towards these fund.

Contributions by Income

The D.C. Tax System’s Effect on the Income Gap

The income gap in American cities has gotten a lot of attention, with stories in the New York Times and reports by the Brookings Institution and D.C. Fiscal Policy Institute focusing on this issue. This got us thinking about how D.C.’s tax system affects the city’s income gap. To what extent does the income tax system help close the gap?

We looked at data from people filing income taxes in D.C. in 2011 to see how the local tax system affects residents’ incomes. We excluded from our analysis filers with no tax liability, since these filers generally report large losses, from either their businesses or rental properties. We also excluded part-time residents. We found that people on the low end of the income distribution—the bottom two deciles, or tax filers with federal adjusted incomes under $15,600, on average–receive tax credits from the D.C. income tax system. Meanwhile those in the middle and upper income deciles see a decrease in income since they owe D.C income taxes. To calculate the income tax’s effect on an individual taxpayer we totaled any local income tax credits the taxpayer received (including EITC, the property tax credit, and other refundable credits) and subtracted local income taxes they owed.

So, does the D.C. income tax system help close the city’s income gap? Yes. The gap in average income between the poorest and richest ten percent of residents is about $459,000 before taxes. After taxes it’s $432,000. That’s a reduction of $27,000, or about 6 percent.

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A roughly 6 percent reduction in the income gap might seem small, but D.C.’s income tax system is progressive—the percent of income paid towards taxes increases with income. In fact, D.C.’s income tax system is somewhat more progressive than the average of 51 cities across the country we studied in our 2012 Tax Rates and Tax Burdens report. Our report found that for a family with an income of $25,000, D.C.’s income tax burden is less than the 51-city average. For families at income levels of $50,000, $75,000, $100,000, and $150,000, the income tax burden is higher in D.C. than the 51-city average.

To learn more about D.C.’s income gap and the tax system’s effect on it, read our D.C. Economic and Revenue Trends report for April 2014. In it we have a more in-depth analysis of taxes’ effect on income.