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Eye on the News

Stephen Eide
Who is Really Better Off?
People living in red states, a new study finds
28 September 2012

According to an analysis published on Thursday by USA Today, the answer to the election-year question “Are you better off?” depends on where you live. Reviewing Bureau of Economic Analysis personal-income data between the onset of the Great Recession in December 2007 and the second quarter of 2012, USA Today found that red states could respond with a definitive “yes,” swing states with “sort of,” and blue states with “hardly at all.” Those living in the 23 Republican-leaning states have seen a 4.6 percent gain in real personal income. By contrast, income growth was virtually flat (up just .5 percent) in the 15 Democratic-leaning states, while the 12 swing states’ increase fell in between (1.4 percent), tracking closely the national rate (1.6 percent).

To be fair, blue states remain wealthier, contributing 42 percent of the nation’s total income. But they’ve stagnated during the years of recession and modest, stalled recovery, and their tax burdens are higher than those of red states. In the Tax Foundation’s most recent survey of state and local tax burdens, where first place equals the highest tax burden (New Jersey), the average blue-state rank is 12. The average red-state rank is 34.

USA Today’s analysis of the data was rather scant, though. The paper declined to examine the connection between tax policy and growth, focusing instead on the energy booms now underway in several red states, to which much of the largest income jumps may be attributed. North Dakota’s fracking-driven oil and gas economy has boosted income by almost a third since 2007, for example. The only other factor the paper identifies as responsible for red states’ over-performance is high rates of federal welfare spending among “poor southern states.” According to the July State Budget Crisis Task Force Report, 47 percent of Mississippi’s 2009 revenues came from federal grants. But USA Today might have also considered if federal spending had something to do with Virginia’s 5.9 percent growth rate, Maryland’s 7.1 percent, and the District of Columbia’s whopping 13.8 percent.

Analysts often attribute economic vitality to high education levels, but that correlation doesn’t quite bear out here. On average, more than 30 percent of blue states’ populations have a bachelor’s degree or higher, compared with 24 percent among red states. Wealth and education appear to be more closely linked than economic growth and education. After a certain point, promoting ever-greater shares of college graduates among a given population seems not to yield proportionate economic gains.

A 2011 study by the Boston-based think tank MassINC came to this conclusion about Massachusetts, the best-educated state in America. Among states, Massachusetts led the nation in proportion of college-educated adults both at the beginning and the end of the last decade; the state’s share currently stands at 38 percent. But economic data plainly demonstrate that 2000-10 was, in MassINC’s phrase, a “lost decade” for the state. Income growth was flat, the state economy grew more slowly than the national economy, and Massachusetts ended the decade with 143,000 fewer jobs than it had at the outset.

The blue versus red income-growth gap deserves to be understood better, not only for its causes but for its effects. Big blue states haven’t been posting impressive population gains of late. Might stagnant income growth be one reason why? From 2000 to 2010, New York, New Jersey, and Illinois all grew by less than 5 percent, well below the 9.7 percent national rate. California grew by 10 percent, mostly because the state’s high rate of domestic outmigration was offset by foreign immigration and natural increase, both of which have since slowed. Red and swing states in the West were the major beneficiaries of the “great California exodus.” Between 2000 and 2010, Texas alone netted 225,000 new residents from California.

Stronger population and income growth in red states—good news for Republicans, right? Maybe not. A recent Politico analysis showed that 2012 appears to be trending Democratic in no small part because of the changing populations of the red states. Not that Republicans can’t win (see 2010), but “Democrats have more margin for error than Republicans. . . As more voters, both transients from other states and immigrants, have poured into states like Nevada, Colorado, Virginia and North Carolina, political demographics in these places have been transformed.”

But the full implications of these shifts remain to be seen. What is certain is that Americans have always been a mobile and opportunistic people. If these disparities persist between states’ rates of income and population growth, the gaps cannot fail to have political effects.

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