Household Incomes

“A large income is the best recipe for happiness I ever heard of.” - Jane Austen

I love charts and graphs. The saying “a picture is worth a thousand words” is never truer than with a well-designed graphic. The right image can condense hundreds of numbers into something that makes sense.

The most recent interactive graphic to catch my eye is USA Today’s chart of US Household income from the latest Census Bureau data.
There are actually two charts embedded in the web page. Look for the click bar below the title “Changes in household income” to change the chart.

The first display, “Household income change from 2005-06 to 2007-08” shows the different effects of the recession on states. Average income in nearly half of the states (22) went down in the past two years. This chart has some clear winners and losers. Recession proof states with a 5% or greater boost in income include Alaska, North Dakota, Colorado, Oklahoma, New Hampshire, Alabama and Washington D.C. The biggest losers with a 5% or greater drop include Tennessee, Georgia, New Jersey, and Vermont. I’m puzzled by the results for neighboring states Vermont (-10.3%) and New Hampshire (+5.7%). Why such a great difference?

The second display, “Household income 2007-2008” also has a few exceptional states. The northern Atlantic coast made the big bucks with New Hampshire (#1), Maryland, Connecticut, New Jersey, Virginia, and Massachusetts topping the list. Also placing high are Alaska, Hawaii, and Colorado. The West Coast states earn above average as does the Rust Belt region. At the bottom of the list is Mississippi with neighboring southern states not far behind.

Bottom Line

After looking at both charts, three states stand out. Alaska, New Hampshire and Colorado are leaders in average income and the income level is rising >5% despite the recession. My wife & I sometimes wonder where we’d like to retire. I’ll have to add Colorado to my list of candidates as a state that is doing something right (at least economically). Sorry AK and NH, you’re great states but have too much snow for me to retire at.

I should mention that some states are difficult to examine in charts like these. Big states like New York, California, Michigan, and others have huge urban cities but also large regions of farms, woods, and mountains. Life is very different in Detroit vs. the Upper Peninsula, New York City vs. the Adirondacks. The highs and lows get averaged out in these states. So income in the New York City metropolitan area may have declined sharply but the upstate region is holding its own so the average decline for all of NY is “only” –2.2%.

Interestingly the story gets more complex when I look at income data from 1999 to 2005 at www.washingtonmonthly.com/archives/individual/2006_09/009459.php. It appears that while the “economy” and stock market did well in the early 2000’s, this did not trickle down to the income of most households. The National average declined 2.8% during this period. Alaska (-7.2%) and Colorado (-10.6%) both dropped. New Hampshire however did well with +5.6%. Why is the money flowing there? Hawaii and North Dakota also improved so their income climb has lasted at least a decade.

Update

I decided to find out what makes New Hampshire special. Why is income rising there? Wikipedia suggests an answer: The state has no general sales tax, no personal state income tax (except for dividends and interest) and the legislature has exercised fiscal restraint. While the lack of a state-wide tax system has resulted in some local communities having the nation's highest property taxes, overall New Hampshire is ranked 49th among states in combined state and local tax burden.

In contrast, next door neighbor Vermont was ranked 32nd among states in which to do business in 2007. In 2008, an economist said that the state had "a really stagnant economy, which is what we are forecasting for Vermont for the next 30 years." The state has the lowest gross state product in the nation (meaning it is the least productive). Why?

In 2007 Vermont was 14th highest out of 50 states and the District of Columbia for combined state and local taxation. CNNMoney ranks Vermont the highest tax burden in the nation based on a percentage of per capita income, i.e. Vermont takes the biggest percentage bite out of people's paychecks.

Clearly, high taxes are bad for states.