Personal Taxes

Private Revenue Rose in 2021, However Development Assorted by State

Editor’s note: This article is a quarterly update to the state personal income indicator for Pew’s Fiscal 50 project.

Total personal income climbed in every state during the second year of the COVID-19 pandemic as the economy continued to recover, with Idaho and South Dakota experiencing the strongest gains. Americans’ earnings from work, which account for the bulk of personal income, recorded the sharpest annual increase in over two decades. Federal aid and other public assistance also added to states’ gains, surpassing 2020’s elevated levels.

Total personal income rose across states in 2021 as the economy largely followed an upward trajectory after severe losses early in the pandemic. Nationally, the sum of personal income from all sources was up 3.1% from 2020, after accounting for inflation.

Earnings, which include wages from work plus extra compensation such as employer-sponsored health benefits, and business profits, drove much of the growth after a stagnant 2020. Nationally, combined earnings jumped an inflation-adjusted 4.6%—the steepest annual growth in more than two decades—as wages increased and employment approached pre-pandemic levels by the end of the year. In Nevada and New Hampshire, annual earnings growth topped 7%, while only Alaska sustained a decline.

Government assistance also contributed to states’ gains, fueled by the American Rescue Plan Act’s infusion of a third round of economic impact payments in the first quarter of 2021. Assistance then subsided in each subsequent quarter, resulting in an annual increase of 4.1% from 2020 Government assistance from all sources, which also includes Social Security, Medicare, state unemployment insurance, and other safety-net programs, increased in 2021 in all but six states from already elevated 2020 levels.

Idaho recorded the nation’s largest total annual personal income growth—5.3%, after accounting for inflation. Significant gains in construction, retail trade, and other industries boosted total earnings, while the state also experienced among the sharpest increases in government assistance. South Dakota (5.1%) similarly benefited from strong growth in both government aid and workers’ earnings as farm income soared. Other states with the largest annual increases included Florida and Nebraska (both 5%), and New Hampshire (4.7%). Vermont (0.3%) and Michigan (1%) experienced the weakest growth for the year as higher work-related earnings were partially offset by declines in government assistance income.

State personal income sums up all the money that residents receive from work, certain investments, income from owning a business and property, and government assistance, including the extra federal aid provided in response to the pandemic, as well as benefits from employers or the government . Other measures should be used to approximate income growth for individuals, such as state personal income per capita or household income. Data presented here is not intended to provide an overall assessment of states’ economies as other economic measures should be considered.

Growth in the fourth quarter of 2021

Total personal income in the fourth quarter of last year was up from the same quarter in 2020 in about two-thirds of states, climbing at an annualized rate of 1.2% nationally. Combined earnings from work increased in most states, despite the emergence of the Omicron coronavirus variant. Nine states experienced declines, including South Dakota, Iowa, and a few other states that incurred substantial drops in farm earnings from elevated levels in 2020’s fourth quarter.

State personal income has fluctuated greatly over the course of the pandemic, reflecting the timing of multiple rounds of pandemic-related federal aid. In the fourth quarter of 2021, total government assistance changed little from the same quarter a year earlier. Additional income from the expansion of the Child Tax Credit, which assists working parents who have child care expenses, offset much of the decline in pandemic-related unemployment insurance payments.

Year-over-year results for the fourth quarter of 2021 are based on estimates and are subject to revision, as is Pew’s ranking of growth rates for state personal income.

State highlights since the start of the COVID-19 recession

Since the pandemic’s arrival, states have largely avoided sharp declines in personal income thanks to multiple rounds of federal support for individuals and businesses. In the fourth quarter of 2021, nearly all states’ personal income was up from pre-pandemic totals, with a group of mostly Western states claiming the greatest gains.

A comparison of states’ total inflation-adjusted personal income based on annualized growth rates, between the fourth quarter of 2019—before the pandemic and recession—and the fourth quarter of 2021 shows:

  • Idaho led all states with growth equivalent to 4.5% each year since the start of the pandemic, followed by Arizona (3.9%), California and New Hampshire (3.8%), and Utah and South Dakota (3.7%).
  • Idaho, Utah, and several other states with the largest gains benefited from robust population growth, a trait typically associated with a strong labor force and economic expansion.
  • Wyoming (-0.7%) and Alaska (0%) recorded the weakest performance, due in part to income losses in their energy sectors.
  • Government assistance remained well above pre-pandemic levels in the fourth quarter in every state, led by Kentucky (10.7%) and Nebraska (10.6%). In 10 states, total personal income would still have been slightly below pre-pandemic totals if not for elevated levels of government assistance. (Download the data to see states’ growth rates for total earnings and government transfer payments.)

Pandemic relief and state ledgers

State personal income matters to state governments not only because it helps assess the economic well-being of its residents but also because changes in residents’ income can signal that tax revenue and spending demands are apt to rise or fall, with repercussions for state budgets.

Soon after the start of the pandemic, the huge spike in personal income totals in every state was driven not by economic growth but by the surge of public relief money—especially from the federal government—that was provided to individuals and businesses. The extra money that residents had available to spend helped support state economies disrupted by the pandemic and recession and also generated state tax revenue—either through sales taxes on purchases or income taxes in those states that tax unemployment checks.

This analysis is an update to Pew’s state personal income indicator. State personal income is one of several indicators that are part of Pew’s Fiscal 50 project tracking key fiscal, economic, and demographic trends.

What is personal income?

Personal income sums up residents’ paychecks, Social Security benefits, employers’ contributions to retirement plans and health insurance, income from rent and other property, and benefits from public assistance programs such as Medicare and Medicaid, among other items. Personal income excludes realized or unrealized capital gains, such as those from stock market investments.

Federal officials use state personal income to determine how to allocate support to states for certain programs, including Medicaid. State governments use personal income statistics to project tax revenue for budget planning, set spending limits, and estimate the need for public services.

Several issues influence state personal income, many of which are beyond policymakers’ immediate control. Some of the more critical factors include national and global economic conditions, business cycles for a state’s major industries, demographic trends, and investments made over decades.

Growth in personal income should not be interpreted solely as wage growth; wages and salaries account for about half of US personal income. Likewise, growth in total state personal income should not be seen as a measure of how much the income of average residents has changed.

Looking at state gross domestic product, which measures the value of all goods and services produced within a state, would yield different insights on state economies.

Download the data to see state-by-state growth rates for personal income from 2019 through the fourth quarter of 2021. Visit Pew’s interactive resource “Fiscal 50: State Trends and Analysis” to sort and analyze data for other indicators of state fiscal health.

Related Articles