Personal Taxes

Regardless of falling federal assist, whole personal revenue has hit the previous couple of years

Total personal income in each state in the third quarter of 2020 was higher than a year earlier, with significant but rejuvenating state aid to support individuals and businesses as the coronavirus pandemic continued to suppress economic activity. Without government support, personal income in most states would have been lower than a year earlier.

Six months into the pandemic, two main drivers drove residents’ personal incomes up: robust government support and incomes that rebounded somewhat from a sharp decline in the second quarter. However, the third quarter’s year-over-year gains were less than the sizeable growth seen in the second quarter, when an initial infusion of aid funds shook this key economic indicator.

Government aid remained the main driver of growth as temporary relief programs and benefits such as unemployment insurance and Medicaid continued to stabilize the state economy during the pandemic. Without state transfers to maintain total personal income, a total of 27 states would have declined, compared with all 50 in the previous quarter.

In 29 states, income, which includes work wages and additional compensation such as employer-sponsored health benefits and corporate profits, was higher than a year ago when the economy began to recover from historic losses and more companies reopened their doors.

Total personal income rose 5.9% year over year nationwide for the third quarter – $ 1.1 trillion when adjusted for inflation – with Arizona and Georgia seeing the highest year-over-year increases. North Dakota, Wyoming, and other energy producing states, meanwhile, saw much weaker growth.

At the national level, government transfer payments after taking inflation into account fell by around 24% compared to the second quarter, but remained unusually high. Combined state and federal assistance declined after unemployment fell, which reduced the number of people receiving benefits, most eligible Americans exhausted their stimulus payments, and some benefits ran out. The year-over-year increase in government assistance ranged from 18% in Mississippi to nearly 77% in Hawaii, reflecting an increase in unemployment rates.

In some states, income recovered as more Americans returned to work. At the national level, third-quarter earnings rose roughly $ 65 billion year over year based on annualized data adjusted for inflation. This is a significant turnaround from the $ 670 billion loss in the second quarter. Pandemic layoffs and business closures in the second quarter had resulted in lower profits in all states, while only 21 declined year over year in the third quarter, driven by better economic conditions. Utah led all states with annualized earnings growth of 6.7%, while Hawaii posted the biggest loss at 7.3% as the tourism industry continued to struggle.

State personal income – a measure of economic development – is important to state governments because tax revenues and spending requirements can rise or fall along with income from residents. It summarizes all of the monies and benefits residents receive from work, certain investments, income from owning a business and real estate, and benefits from employers or the government, including additional federal aid, in response to COVID-19 -Pandemic is granted. The results for the third quarter of 2020 are based on estimates and are subject to revision, as is Pew’s ranking of government personal income growth rates.

Download the data.

State highlights last year

The third quarter of 2020 reflected a recovering economy after the pandemic and ensuing recession resulted in widespread business closings and layoffs earlier in the year. A comparison of the estimated annualized growth rates of total inflation-adjusted personal income of each state between the third quarter of 2020 and a year earlier (subject to data revisions) shows:

  • Arizona (8.5%) had the highest growth rate in the sum of the personal income of all residents of a state, followed by Georgia (8.4%), Massachusetts and Pennsylvania (both 8.3%), and Rhode Island (8.1% ). Georgia and Arizona were among the states with the greatest increases in income, and Massachusetts, Pennsylvania, and Rhode Island saw some of the largest increases in transfers.
  • Wyoming’s total personal income was largely unchanged, while North Dakota saw only a modest increase (0.9%). Both were among just five states that posted growth rates below 3%.
  • In seven states – California, Hawaii, Illinois, Massachusetts, Nevada, New Jersey, and Pennsylvania – state transfer payments rose at least 50% year over year.
  • Of the 29 states with higher than a year earlier revenues, the strongest increases were in Utah (6.7%), Florida (5.7%) and Idaho (5.3%). The largest losses were recorded in Hawaii (-7.3%), Wyoming (-3.8%), Nevada (-3.8%) and North Dakota (-3.7%).

Countries recovered unevenly from the great recession

States entered the new recession from very different starting points in terms of personal income growth during the longest economic recovery in US history. Personal income, adjusted for inflation, eventually recovered from the Great Recession in all countries, but at different rates. From the start of the 2007-09 downturn through the fourth quarter of 2019 – the last quarter before the coronavirus pandemic began to derail the economy – Utah and North Dakota led all states with long-term average annual growth rates of 3.4% and 3.3, respectively % per year, followed by a group of predominantly western countries. Connecticut and Mississippi lagged all other states with pre-pandemic growth rates of 0.9% per year, less than half the US rate of 2%. These average annual growth rates represent the pace at which government income dollars would have to grow each year after inflation to reach their current levels.

Alaska and North Dakota were the first states where total personal income recovered from losses in late 2009, a little over two years after the Great Recession began. It wasn’t until the fourth quarter of 2014, seven years after the start of the recession, that the last state – Nevada – recovered. Most states took about three years for total personal income to return to pre-Great Recession levels, after factoring in inflation.

Although using compound annual growth rates compares states’ economic performance over several years, personal income has not changed steadily, but has decreased in some years and increased in others, based on recently revised data.

No state escaped the Great Recession without a decline in total income for the calendar year, but a handful of states only saw a decline in 2009: Colorado, Idaho, Illinois, Mississippi, Utah, and Washington. The longest recovery recorded in history ended at a high level, with each state reporting a calendar year increase in personal income in 2018 and 2019.

What is personal income?

Personal income includes, among other things, residents’ paychecks, social security benefits, employer contributions to retirement and health insurance, income from rent and other property, and benefits from public aid programs such as Medicare and Medicaid. Personal income excludes realized or unrealized capital gains, for example from stock market investments.

Federal officials use the state’s personal income to determine how support for specific programs, including funding for Medicaid, should be allocated to states. State governments use personal income statistics to project tax revenues for budget planning, set spending limits, and assess public service needs.

Personal income growth should not be interpreted as just wage growth. Wages and salaries make up about half of US personal income. Similarly, total government personal income growth should not be viewed as a measure of how much the average resident’s income has changed. Other measures should be used to approximate income growth for individuals, e.g. B. the state personal per capita income or household income.

A look at the state’s gross domestic product, which measures the value of all goods and services produced in a state, would provide different insights into the state’s economies.

Download the data to view state-to-state personal income growth rates from 2007 through the third quarter of 2020. Visit Pew’s interactive resource, Fiscal 50: State Trends and Analysis, to sort and analyze data for other indicators of State Fiscal Health.

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