Personal Income is often used as a measurement of economic growth but it can be skewed up or down by changes unrelated to private sector economic activity. Media and others also have cited Personal Income changes to measure the efficacy of state tax policy even though large portions of Personal Income are unrelated. The phrase ‘Personal Income’ sounds like it might account for income people earn, but the federal government’s definition includes things in ‘income’ that people never see in their paychecks, such as employer payments for retirement programs and health insurance. Personal current transfer receipts include some money available to spend or pay taxes like Social Security and unemployment payments but changes in those numbers are not results of economic growth or decline. Other elements of personal current transfer receipts include payments for government medical benefits, veterans’ benefits, business liability payments for personal injury and corporate gifts to nonprofit institutions, none of which result from private sector economic activity. Capital gains and corporate profits are measures of economic change but are not included in Personal Income.
Kansas Personal Income as defined by government only increased by 1.6 percent in 2014, but Private Nonfarm Wages grew by 4.8 percent; farm wages, non-farm proprietors’ pre-tax income and Dividends/Interest/Rent all increased much more than Personal Income. The same was also true in 2015.
Farm and non-farm proprietors’ pre-tax income can grow or decline because customers are spending more but they can also be influenced by other factors. Weather heavily influences farm prices and production and while that does have an economic impact, it’s not driven by tax policy and cannot be used as a proxy for its efficacy. The same is true of nonfarm proprietors’ pre-tax income, where outside factors such as health care insurance and raw materials prices can reduce profits.