Minnesotans' incomes rose, but many may hardly have noticed

  • Article by: DEE DEPASS , Star Tribune
  • Updated: June 23, 2011 - 5:06 PM

Social Security tax cuts were credited with helping boost take-home pay.

Minnesota wallets grew a little thicker during the first quarter as personal income rose 1.6 percent, thanks to cuts in Social Security taxes and bigger paydays for farmers, scientists and durable-goods workers.

But the lackluster growth rate placed Minnesota 40th across the nation, where paychecks grew by 1.8 percent, thanks in part to gains in oil/gas mining and durable-goods manufacturing.

Some economists credited the income increases here and nationwide to the 2010 U.S. Tax Relief Act, rather than rising wages. The tax relief resulted in a 2 percentage-point cut in employee contributions to Social Security, which effectively boosted take-home pay for workers, government officials said.

Those cuts boosted income levels for all states. But for Minnesota, that was especially important, said U.S. Bureau of Economic Analysis (BEA) economist Matthew von Kerczek . "Since Minnesota is growing slower than the U.S., I think most of its growth is coming from that payroll tax cut in the first quarter."

State Economist Tom Stinson disagreed. He noted that Minnesota actually did better than the numbers indicate because health care companies issued abnormally large bonuses in the fourth quarter of 2010, which skewed comparisons to the first quarter.

Stinson prefers to exclude those one-time variations by comparing first quarter 2011 income with the first quarter of 2010.

"If you do that, we are doing a little bit better than the U.S. average," Stinson said. On that basis, income grew 5.5 percent in Minnesota compared to 4.7 percent nationwide.

Minnesota reported income gains during each of the past four quarters.

Wednesday's report from the BEA revised previous growth estimates. It previously reported that Minnesota's income grew just 0.7 percent in the fourth quarter, but revised that Wednesday to 1.3 percent.

 

No. 1 North Dakota

 

Booming North Dakota, where income from oil and wheat fields, manufacturing and other industries placed first in the nation, grew paychecks at an impressive 6.9 percent during the first quarter. Iowa, meanwhile, ranked 50th in the nation, with just a 0.7 percent rise in first-quarter income. Iowa suffered from rising livestock costs, higher grain prices and falling production.

South Dakota placed 49th nationwide, with personal income that grew 0.8 percent. Wisconsin placed ninth, growing 2.1 percent.

Mel Gray, business economics professor at the University of St. Thomas, said he expects to see regional improvements as unemployment declines over the next six months. Minnesota's unemployment ticked up by 0.1 percentage point to 6.6 percent in May, despite the addition of 1,200 jobs.

He also said he expects to see improvements in future income reports. Minnesota's aging baby boomer population means that there should be greater growth in the sales, earnings and wages of Minnesota's medical device firms, he said.

Dee DePass • 612-673-7725

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