How Plunging Off the Fiscal Cliff Affects New Mexico

WASHINGTON – New Mexico’s plunge off the fiscal cliff could be steeper than that of other states because of its heavy reliance on federal spending.

It remains unclear how – or even whether – Congress and the White House will reach agreement to avert across-the-board payroll tax increases and deep cuts to federal spending programs, but here’s how New Mexicans may feel the pinch.

Tax impacts

♦ Social Security payroll tax withholding would automatically increase from 4.2 percent to 6.2 percent. That means workers making about $50,000 a year would take home about $40 less every two weeks. But no one – including the Internal Revenue Service, employers or tax consultants – is certain of the exact impact on taxpayers, lacking guidance on what withholding taxes will be in play in 2013. This is expected to occur regardless of a fiscal cliff deal.

♦ The federal extension of unemployment benefits – past the first 26 weeks of state-issued benefits – ends immediately if a deal is not reached. However, the federal extension was part of the tentative package.

♦ Federal income tax rates would rise on everyone with expiration of the tax cuts enacted under former President George W. Bush. The tentative package would extend the tax cuts for individuals making $400,000 or less and for households making $450,000 or less. But if no deal is reached, taxpayers with incomes of $40,000 to $65,000 would see their paychecks shrink an average of about $1,500 a year, according to the nonpartisan Tax Policy Center.

♦ Also set to expire are the alternative minimum tax patch that increased the amount of income exempt from the AMT and a series of previously extended temporary tax provisions known as tax extenders.

Budget cuts

♦ “Sequestration” – automatic budget cuts triggered by the fiscal cliff – could cost New Mexico $1.35 billion in federal money in 2013 and $1.928 billion each year from 2014 through 2021, according to federal analyses. The state’s numerous defense installations and two national laboratories could be among the government programs to take the hardest hits.

♦ The sequestration could cut nearly $400 million for nuclear work in New Mexico next year, including Sandia and Los Alamos national labs and the Waste Isolation Pilot Plant near Carlsbad.

⋄  The spending reductions would also diminish the budgets of a wide array of government programs, including public education, health care, the U.S. Forest Service, Native American services and job training. The cuts would result in an estimated 20,000 job losses in New Mexico.
— This article appeared on page A1 of the Albuquerque Journal