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Useful Stats: Personal income grows, state ranks largely unchanged

April 20, 2017
By: Jason Rittenberg

According to the most recent U.S. Bureau of Economic Analysis state personal income data, national per capita income grew 4.0 percent from 2015 to 2016, and growth since 2012 is at 12.0 percent. States are experiencing this growth disparately, however, with five-year growth rates ranging from -0.6 percent (North Dakota) to 17.6 percent (California). Over this period, few states experienced significant changes in their performance relative to their peers — just four states moved more than five rankings — but shifts between income quintiles and variable growth rates suggest that more movement will be witnessed over the next few years.

From 2012-2016, state per capita income became distributed less evenly. The difference between the top 10 states and bottom 10 states grew by 9.4 percent to a gap of $13,203 dollars in individual income. This lowest quintile of states actually experienced the highest rate of growth (12.3 percent) over the period and is converging with the income of the next 10 states. Nonetheless, without significant improvements in growth for the lower-income states, the differences between the best and worst states will continue to grow.

Few specific states shifted their rankings significantly over the past five years. Louisiana was the only state to move more than five places from 2015 to 2016 (31st to 37th), and from 2012 to 2016 just three other states — Michigan (39th to 32nd), North Dakota (4th to 11th) and Oregon (37th to 30th) — experienced similarly-sized shifts. This lack of change appears largely due to similar growth rates among states as 38 had a median annual growth rate less than 0.3 percent above or below the national rate.

Among the 10 states with the highest median income from 2012-2016, five have annual growth rates below the national rate. These states include North Dakota and Wyoming, which — along with South Dakota — have the lowest annual growth rates in the country, and Washington, D.C. is not far behind. While Washington’s low growth seems like a sign of a ceiling effect — the District had the highest income each year — declining energy prices in the wake of the natural gas boom seem to be driving low growth in these Great Plains states (as well as Louisiana).

California and Washington, currently just outside the top 10 states for per capita income, have experienced the highest annual growth rates and will move up soon if these trends continue. Meanwhile, Connecticut, Massachusetts, New Hampshire and New York are in the top quintile for both median income and growth rates over this period.

None of the states in the bottom 10 for median income have annual growth rates more than one-tenth of 1 percent better than the national average from 2012-2016. Alabama, Mississippi and West Virginia are in the bottom quintile for both median income and growth rates.

Kansas, Missouri and Texas, while currently firmly in the middle quintiles for median income, are the other states with the slowest rates of growth. All three states undertook significant tax reforms in this time period: Kansas for income tax in 2012 (growth for 2011-2010 was 8.1 percent); Texas, which does not collect income tax, for sales and franchise taxes in 2013 (median growth from 2010-2012 was 6.6 percent); and Missouri for sales and corporate taxes in 2015 (median growth from 2010-2014 was 3.6 percent; an income tax cut passed in 2014 but was set to begin in 2016). Any potential relationship between these tax reforms and future growth is important because all three states have used declining state budgets to justify cuts to innovation-focused programming.

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