Editorial: Tax reform package doesn’t fit bill for N.M.

The tax reform package approved by the Senate Finance Committee is a huge disappointment — at least if the goal was to give the state a better chance to attract, create and keep private-sector jobs.

In fact, the plan keeps our uncompetitive corporate tax rate above that of neighboring states and largely enshrines an archaic tax policy that rewards businesses for moving jobs out of New Mexico.

New Mexico’s corporate tax rate at 7.6 percent exceeds the national average of 6.4 percent. According to the bill’s Fiscal Impact Report, a 50-state study commissioned by the Council on State Taxation found New Mexico ranked last for its long-term effective tax rate/after-tax return on investment.

The study also said New Mexico’s tax rates and complicated tax credit incentive system “are a burden on firms considering investments in New Mexico and are ‘almost certainly impeding economic growth.’ ”

It gets worse when you look at the neighborhood, where corporate income tax ranges from 4.63 percent in Colorado to 5 percent in Utah. Arizona’s tax is 6.968 percent.

In addition to keeping the corporate income tax rate too high, the plan rejects a large-scale move to a so-called single sales factor option, where companies are largely taxed on what they sell in New Mexico — rather than the current bizarre policy of basing a big piece of the tax burden on how many people they employ here.

Under the current three-factor tax formula — which includes the percentages of total payroll, property and sales in New Mexico — corporations that expand elsewhere or move operations to another state can actually experience a tax cut, while companies that expand here get a tax increase.

Huh? Any wonder we’re in the bottom tier of most lists — except the ones with labels like “Death Spiral States?”

New Mexico desperately needs corporate tax reforms because the industry we’ve been really good at, taking money from the federal government, is past its heyday. Or perhaps those who wield majority power in the Legislature haven’t heard about sequestration.

Senate Finance Committee Chairman John Arthur Smith, D-Deming, says the “overall bill is a tax reduction, no ifs, ands or buts about it.” That isn’t the point.

Yes, there are some cuts. But the package overall is ineffective. It won’t help businesses expand or encourage them to move here. In a global economy where capital goes where it is most effective, it does just the opposite.

If the Senate was serious about trying to revitalize the economy at a time when federal funds are dwindling, this package would have had a single sales factor option that applies to all businesses, coupled with enough of a corporate income tax rate reduction to make us competitive.

The package that emerged would help the typical Big Box retailer more than it would help a Tempur-Pedic or a General Mills. It even has a provision that would make it less attractive to Intel — the only company with a big enough investment to qualify for the single sales factor option under this plan.

Gov. Susana Martinez urged a single sales factor for all business and a phased-in, top-end corporate tax rate of 4.9 percent. Albuquerque Economic Development pushed for a single sales factor option for all manufacturers.

Perhaps that’s based on the fact that the governor, AED and other business recruiters are out in the real world where corporate executives tell them what figures into their decisions to expand and relocate.

This is a weak effort. Time is short, but lawmakers should make a last ditch effort to fix this. If not, the governor should veto it.

This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.