Over the past decade, we have seen substantial changes in the income of Americans. Nationally, between 2014 to 2024, total personal income grew by an annual average of 5.2% while consumer prices rose at a 2.8% annual average rate. All states, led by Utah and Idaho, posted gains exceeding that rate of inflation. Indiana came in 22nd at 5.1%, just behind the District of Columbia and just ahead of Virginia.

Data distracters will say that 0.1% between Indiana and the nation is just a rounding error. It doesn’t mean much. It’s only an estimate subject to revision. Data disciples will note, if Indiana has just equaled the national average rate of growth, Indiana’s personal income in 2024 would have amounted to a lag of $10.8 billion.

Income has three major components. Most of our income is the result of working. Earnings by place of residence (rather than by place of employment) as a share of total income were 64% for the United States in 2014, but declined to 61% ten years later. Only the state of Washington showed an increased share of its total personal income coming from earnings. Here in Indiana, earnings went from 65% of income to 63%, a small decrease compared to Wyoming’s fall of 58% to 49%, the only state where earnings were less than half of all income. Does this foreshadow the future?

What filled the gap left by weak earnings growth? First, it was returns on capital in the form of dividends, interest and rent (DIR). While earnings grew at a 4.8% average annual rate both nationally and within Indiana, DIR advanced by 6.1% annually, led by Utah at 9.2%. High interest rates and robust consumer demand pushed up housing values stimulating DIR increases of 6.8% or better in 14 states. But thanks to legislative cowardice, taxes on earnings are higher than taxes on capital gains for many.

Secondly, transfer payments grew by 6% annually, to move from 18% of income in 2014 to nearly 25% in 2024. Among the factors at work were Social Security and Medicare for a burst of baby boomers, unemployment compensation for a growing group of white collar workers, and higher health care payments for low income recipients via Medicaid.

The relative decline of earnings were offset by higher DIR and increased transfer payments. We increased income disparities between those who have claims on capital (the wealthy and the aging with substantial retirement accounts) and those with earnings. Then we supported a generational need for increased medical care resulting from decades of smoking and environmentally-related maladies (COPD and air pollution, for example). Weak federal tax policies have combined with federal acceptance of fiscal responsibility for health and natural disaster expenditures (COVID and storm/fire damages). It is an era of extravagant consumerism overshadowing responsible fiscal behavior.
Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed his podcast.

© 2025 Morton J. Marcus

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