Personal Taxes

States started report personal revenue development in 2021

Note: On September 2, 2021, a reference in this analysis to the fourth quarter of 2021 was corrected to the first quarter of 2021.

More than half of the states had their strongest personal income growth ever in the first quarter of 2021 as the economic recovery accelerated. Multiple rounds of pandemic-related government benefits resulted in year-over-year profits in each state, while revenue – the bulk of personal income – also increased in most states. However, the sharp rise in total personal income will be temporary as federal aid payments expire.

In the first quarter of 2021, nearly all states saw double-digit growth in total income compared to the same period last year when the abrupt recession from March to April 2020 threw the economy off track for the first time. Utah (19.8%), Idaho (19.4%) and West Virginia (19.2%) saw the strongest increases. At the national level, total personal incomes of residents from all sources increased by 14.4%, adjusted for inflation, the highest year-on-year growth rate since this key economic indicator began reporting in 1948.

An increase in government aid to individual Americans led to dramatic increases in each state, with total aid in Hawaii, Nevada and Utah more than doubling year over year. Between January and March 2021, one-time payments of up to $ 600 and $ 1,400 per qualified person, received from two federal economic aid packages and Additional Aid respectively, recorded revenue received primarily from multiple sources of government assistance – including Social Security, Medicare and Medicaid, safety net programs, and government unemployment insurance – the second largest quarterly growth on record.

However, the supply of federal aid will only provide a temporary boost, as aid in connection with the pandemic will decrease significantly in the second quarter. Recent national estimates by the US Bureau of Economic Analysis show that US personal income declined significantly in the second quarter of 2021 compared to the first quarter.

The multiple rounds of government support to individuals and businesses have so far produced very different results than during the Great Recession, when aggregate individual incomes fell nationally, including in all states. Thanks to unprecedented temporary government assistance, states largely avoided sharp slumps in personal income in 2020 after COVID-19 left millions unemployed. In the first quarter of 2021, less than a year after the official end of the most recent recession, total personal income in all states exceeded, at least temporarily, pre-pandemic levels, after factoring in inflation. In contrast, after the Great Recession ended, it took five years for the last state – Nevada – to return to pre-recession personal income levels.

In most states, revenue increased

The share of personal earnings from earnings – which includes wages, additional allowances such as employer-funded health care, and corporate profits – also increased, albeit far less than total state aid. Revenue for the first quarter of 2021, adjusted for inflation, was $ 177 billion higher than a year earlier, compared to a $ 2.8 trillion increase in revenue from all sources of government support. Profits rose for the third quarter in a row, above pre-pandemic levels after plummeting in the first few months of 2020. All but 10 countries recorded increases compared to the previous year.

Utah is characterized by not only benefiting from the largest increase in government aid compared to Q1 2020 (120.4%), but also from the highest aggregate earnings growth (8.2%) of any state. This made it one of 31 countries in which total personal income would have grown over the course of the year even without government support. Jobs in finance, insurance, retail, and professional and technical services such as lawyers, accountants, and engineers made significant contributions to government income growth. Similarly, South Dakota, where income rose 6.3% year over year, saw strong growth in healthcare and welfare. By comparison, Hawaii saw the largest drop in income (-6.8%), largely due to lost income in the lodging and catering services as the state’s tourism sector has not yet recovered.

State personal income – a measure of economic development – is important to state governments as tax revenues and spending claims can go up or down along with residents’ incomes. It brings together all of the money residents receive through work, certain investments, income from owning a business and property, and government support, including additional federal aid in response to the pandemic, and benefits from employers or the government. Other measures should be used to approximate income growth for individuals, such as government personal per capita income or household income.

Several aspects affect the personal income of the state, many of which are beyond the direct control of policymakers. More critical factors include national and global economic conditions, business cycles for a state’s major industries, demographic trends, and decades of investment.

Country highlights last year

Temporary state aid rose in 2021 after the passage of two additional federal relief laws. A comparison of the estimated inflation-adjusted personal income of the state in the first quarter of 2021 versus the first quarter of 2020, which included the first month of the COVID-19 recession, shows:

  • All states saw total personal income increases, but 27 saw the strongest year-over-year growth on record.
  • After Utah, Idaho, and West Virginia, Michigan and Mississippi (both 19.1%) saw the largest total increases, while Wyoming (9.4%) and Connecticut and New York (both 9.5%) saw the smallest increases.
  • States would not have enjoyed such growth if they hadn’t had government support, which skyrocketed thanks to the influx of federal pandemic aid. In fact, 19 states would have experienced a decline in total personal income if all sources of government support had been excluded, even though more than half of them would have suffered only slight declines of less than 1%.
  • Without state aid, Utah (4.9%), South Dakota (3.4%), and Arizona and Idaho (both 3.1%) saw the greatest growth in personal income based on income plus dividends, interest and rents.
  • Year-over-year increases in all sources of government support for citizens ranged from 65% in West Virginia to about 120% in Hawaii and Utah.
  • Most states also benefited from increases in earned income, led by Utah (8.2%), South Dakota (6.3%), Idaho (5.7%), Montana (5.4%), and Arizona (5th , 3%).
  • However, profits continued to decline in 10 states: Hawaii (-6.8%), Wyoming (-3.7%), Nevada (-3.3%), New Mexico (-3.2%), New York ( -2.3%), Oklahoma (-2.2.). %), North Dakota (-1.9%), New Jersey (-0.9%), Alaska (-0.6%) and Louisiana (-0.2%).

The results for the first quarter of 2021 are based on estimates and are subject to revision, as is the ranking of Pew’s growth rates for government personal income.

Download the data to see state growth rates for total income and state transfer payments.

Countries recovered unevenly from the Great Recession

States entered the new recession from very different starting points in terms of personal income growth experienced during the longest economic recovery in US history. After the Great Recession, inflation-adjusted personal income eventually recovered in all states, but at different rates. From late 2007 (when the economy peaked before the Great Recession) to the fourth quarter of 2019 – the last quarter before the pandemic began to derail the economy – Utah and North Dakota listed all states with corresponding long-term annual average growth rates 3.4% and 3.3% respectively, 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 indicate by how much the personal income of each state would have increased if it had grown steadily. Although personal income does not actually change constantly, but rather decreases in some areas and increases in others, the measurement offers a uniform way of comparing countries and tracking their economic trends.

Download the data.

What is personal income?

Personal income includes, but is not limited to, residents’ paychecks, social security benefits, employer contributions to retirement plans 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, such as those from stock market investments.

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

Personal income growth should not be interpreted in terms of wage growth alone; Wages and salaries make up about half of US personal income. Likewise, growth in total personal income in the state should not be viewed as a measure of how much the income of the average resident has changed.

A look at the state gross domestic product, which measures the value of all goods and services produced within a state, would lead to different insights into state economies.

Download the data to see federal personal income growth rates from 2007 through the first quarter of 2021. Visit Pew’s Fiscal 50: State Trends and Analysis interactive resource to sort and analyze data for other government financial health indicators.

Analysis by Barb Rosewicz, Mike Maciag and Joe Fleming.

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