For the second time in a decade, New Mexico elected officials have succumbed to the siren song of tax cuts as the solution to the state’s economic woes.
In 2003, they adopted deep cuts in personal income and capital gains taxes that now cost roughly $500 million a year – money no longer available to invest in public services like education and health care.
One result? New Mexico has cut aid to higher education more deeply than any other state in the past five years, in terms of dollars of funding per student. And it has cut per-student aid to K-12 education more deeply than all but four other states.
And yet, despite the tax cuts, the state’s economic performance has barely improved. A recent study by the Washington, D.C., based Center on Budget and Policy Priorities found that New Mexico’s share of nationwide employment grew by 0.02 percentage points between 2002 and 2011 – welcome, to be sure, but hardly worth the sacrifice of enough annual revenue to pay the starting salaries of 15,500 teachers.
Now the Legislature has given in to Gov. Susana Martinez’s push for a sharp cut in the corporate tax rate and another tax change that ultimately will enable major manufacturers to largely avoid corporate income tax altogether.
The tax cuts will cost New Mexico $71 million in fiscal year 2017, and that’s a year before they are completely phased in. These new tax cuts will do no more than the last ones to boost New Mexico’s economy. In fact, in the short run, they will likely hurt it.
Why? The lost revenue means New Mexico will have less money to pay the private contractors that maintain the state’s roads, the aides who care for elderly people in private nursing homes and the teachers who educate the state’s young people.
These workers would have spent the lion’s share of their pay in the local economy. Instead, most of the money will go to big multi-state corporations that will likely to stick it in some out-of-state bank or use it to pay dividends to stockholders, most of whom live outside New Mexico.
Even in the long run, any economic gains from the tax cuts will likely be small at best and not worth the damage to New Mexico’s ability to fund critical public services.
Studies show that the real driver of state economic growth is the ability to spawn and support new, innovative firms like a Google or Facebook. Those kinds of businesses need a well-educated workforce equipped with 21st century skills.
And, unfortunately, New Mexico’s education system is seriously deficient. In fact, it’s the single greatest obstacle to the state’s long-term prosperity. Consider:
• New Mexico has the country’s third-lowest high school graduation rate.
• It is in the bottom 10 states in reading and math scores for fourth and eighth grade students.
• It is in the bottom half of states in terms of the share of its workforce with a college degree – and in the share of its public high school students that have passed an advanced placement exam.
If policymakers really want to improve the life chances of New Mexico residents, they should focus on these facts, not on tax rates.
To be sure, money alone is not the solution to the problems with New Mexico’s education system. But no one can reasonably argue that the deep spending cuts have helped. New tax cuts will create pressure for even deeper cuts.
The corporate tax cuts haven’t gone into effect, and we now know that they will cost a lot more than what lawmakers were originally told. It’s not too late to reform or repeal them.