The One Big Beautiful Bill Act (OBBBA) introduced major changes to US taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. law, including permanently extending the core individual provisions of the Tax Cuts and Jobs Act (TCJA). It also carved out new temporary tax breaks that further shrink the income tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates., including new deductions for certain overtime pay, tipped income, and seniors.
The OBBBA’s senior deduction is intended to provide targeted tax relief to those aged 65 and older by lowering their taxable income. Unfortunately, this approach contradicts the neutrality principle of good tax policy, is costly, and is poorly targeted to the retirees who live on fixed or limited retirement incomes.
Impact of the OBBBA Senior Deduction
Seniors aged 65 or older were already eligible for an extra standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative. worth $2,000 for single filers and $1,600 per qualifying individual for married joint filers prior to the OBBBA. The OBBBA provides an additional senior deduction of $6,000 per qualified individual. Unlike the original standard senior deduction, the OBBBA senior deduction is also available for taxpayers who itemize their deductions. Unlike the fixed amount of the standard senior deduction, this hefty additional deduction will phase out at a rate of 6 percent of modified adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods for single filers with income above $75,000 and married filers with income above $150,000.
The distribution of after-tax income across different age groups indicates that seniors benefit the most from the OBBBA tax provisions. Among the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source provisions, the extra senior deduction stands out as a major driver of the variation of the tax benefit across age groups. On average, we estimate each household with a qualifying senior will gain an extra 1.5 percentage point boost in after-tax income due to the extra senior deduction, roughly a $780 increase in their take-home pay.
Table 1. Distributional Impact of OBBBA Senior Deduction vs All OBBBA Individual Provisions
Percent Change in After-Tax Income, 2026, Conventional
Note: Age for joint returns was based on the primary taxpayer’s age. The age information is from the expanded Public Use File that statistically matches individual tax filers’ records to the demographic information from the Census Current Population Survey.
Source: Tax Foundation General Equilibrium Model, October 2025.
The Rising Share of Senior Filers
The steadily rising share of senior filers suggests that the fiscal cost of the extra senior deduction will continue to grow if this policy is extended in the future. The most recent available IRS data for tax year 2022 showed that tax filers aged 65 and above account for more than 19 percent of all returns and more than 22 percent of adjusted gross income (AGI).
In contrast, seniors in tax year 2008 represented only 14 percent of returns and 15 percent of AGI. Seniors’ share of tax liabilities (measured by tax before credits) also increased from 15 percent to almost 22 percent. This increased share is consistent with the aging trend of the American population. Census data show that the share of the population aged 65 and older increased from 12.4 percent in 2004 to 18.0 percent in 2024.
The share of high-income senior taxpayers also increased. Among filers with AGI higher than $100,000, seniors were a 22.6 percent share in 2022 compared to 13.8 percent in 2008. The IRS data suggest that the group of senior filers is increasingly larger and richer on average.
Table 2. Tax Filers Aged 65 and Above Account For More Than 19 Percent of All Federal Tax Returns
The Distribution of Tax Returns, AGI, Tax Liability by Age Groups, 2022
Source: IRS, SOI Tax Stats,
Is It Necessary?
Narrowly targeted tax policies are rarely effective in achieving their goals, and the expanded senior deduction under the OBBBA is no exception. A distributional analysis of the deduction indicates that it misses the intended policy target: the low-income retirees who suffer most from inflationary living expenses, rising medical costs, and the challenge of living on fixed income. The provision mostly benefits the second and the third income quintiles, and the tax relief for the bottom quintile is close to zero. That is because the seniors in the bottom quintile have already benefited from the regular and extra standard deduction, and their tax liability is close to zero. As a result, additional deductions offer minimal tax benefits to those most in need.
Tax deductions for a specific demographic group deviate from neutrality; individuals with the same income may pay very different taxes only due to demographic differences. Moreover, by imposing a phaseout above a certain income threshold, marginal tax rates and the cost of tax compliance increase.
A recent study based on Census survey data has shown that seniors’ average living standards are now comparable to or even higher than those of working-age adults, largely due to the existing redistribution toward older Americans through Social Security and other programs. In the current situation of mounting fiscal constraints, policymakers should reassess whether this age-based tax preference remains justified.
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