A $2.47 trillion spike in government assistance payments during the pandemic has caused personal income to skyrocket in every state, with the spike being especially large in West Virginia, a study released Thursday by the Pew Charitable Trusts shows.
In West Virginia, personal income jumped 14.4% in the second quarter of 2020 — the sixth-highest spike in the U.S., and well above the national average of a 9.7% increase, the study found.
Prior to the infusion of stimulus payments, West Virginia’s personal income grew at a sluggish 1.1% a year from the end of the Great Recession in 2007 through 2019 — the fourth lowest rate of income growth in the nation, the Pew study notes.
West Virginia personal income grew at an anemic 0.2% in 2019, according to the report.
“Total personal income skyrocketed in every state in the second quarter of 2020, driven by unprecedented support from the government to individuals and businesses facing historic economic distress caused by the COVID-19 pandemic. But the temporary federal assistance obscured the coronavirus’s blow to every state’s economy, as earnings — the bulk of personal income — plummeted,” the Pew report states.
“The spike in government assistance was the main reason that the sum of residents’ personal income soared in every state in the second quarter of 2020, despite a record-setting drop in U.S. economic activity due to the pandemic,” the report continues. “The surge in federal assistance more than offset record losses in earnings, which counts wages from work and extra compensation such as employer-sponsored health benefits, as well as business profits.”
The Pew study seems to contradict claims by Gov. Jim Justice and the Justice administration that a strong, diversified state economy — not the federal stimulus payments — are the reason state tax collections are running ahead of estimates to date for the 2020-21 budget year.
“All across the board, West Virginia is kicking butt,” Justice said last week during a briefing on October revenue collections. Justice said the state economy is “the envy of the nation in many ways.”
In October, state Revenue Secretary Dave Hardy conceded the infusion of federal dollars — including $1,200 stimulus checks to most West Virginians, 12 weeks of enhanced $600-a-week unemployment benefits, followed by five weeks of $400-a-week supplemental benefits, along with the portion of the $1.25 billion allocation to state government that has been spent to date, and numerous direct grants — may have had some affect on state revenue collections.
“It would probably take decades to model out the impact,” he said of the federal stimulus funds.
Justice has said it is an oversimplification to suggest the infusion of federal funds is driving the state economy, saying the funds helped small and large businesses get through the initial months of the pandemic, but that their business activity in the months since is what’s moving the economy.
According to the Pew study, wages and earnings nationally fell $860 billion in the second quarter of 2020.
“The pandemic’s blow to wages and other earnings was far-reaching: Every state, as well as nearly every major industry, suffered a decline as many businesses closed temporarily, workers were laid off, and the national economy — as measured by gross domestic product — contracted,” the study states.
“With the additional federal aid offsetting earnings declines, total personal income grew nationally by an annualized $1.8 trillion — equivalent to 9.7% — over the year,” the study concludes. “However, if government transfers are excluded, personal income nationwide would have fallen by 4.8%, and every state would have recorded a decline. In fact, total personal income would have dropped by more than 5% in nearly half of states.”
It notes, “State personal income — a measure used to assess economic trends — matters to state governments because tax revenue and spending demands may rise or fall along with residents’ incomes.”
Reach Phil Kabler at firstname.lastname@example.org, 304-348-1220 or follow @PhilKabler on Twitter.