Editorial: Tax reform deal sweet result of compromise

A phoenix rose from the embers in the Roundhouse on Saturday as a crack in partisan gridlock emerged just long enough for a comprehensive tax reform package to pass — averting a special session and giving the state a fighting chance for economic growth and jobs.

It was an 11th hour effort, literally, as leaders of both parties worked with the governor’s office for legislation that will make New Mexico more attractive to business and industry and more competitive with neighboring states.

It was attached to a television and film credit bill, which the day before Gov. Susana Martinez vetoed, sending a message that she would sign it only as part of a compromise tax reform package.

Lawmakers worked into the night and on the closing morning revived the “Breaking Bad” bill, which was amended on the Senate floor by Sen. John Arthur Smith, D-Deming, and members of his Senate Finance Committee to include the broader reforms.

The House under Speaker Ken Martinez, D-Grants, concurred as time expired on Saturday morning.

The philosophy behind the tax package is to make New Mexico competitive with neighboring states in attracting and keeping business and jobs. That’s critical because federal money we have relied on for so long is drying up.

The package reduces the top corporate income tax rate from 7.6 percent to 5.9 percent over five years starting in 2014 (the national average is 6.4 percent and the governor had advocated for 4.9 percent). Manufacturers will be able to calculate their corporate income tax based on the amount of their in-state sales rather than being taxed on the property and payroll — a dynamic that penalized them for adding jobs in New Mexico and rewarded them for moving them out of state.

And, as part of the deal, big box retailers that operate in multiple states will have to calculate their taxes on their operations nationwide unless they add a certain number of non-retails jobs here.

The package also tightens requirements for high-wage tax credits and gross-receipts tax deductions for consumables available to manufacturers.

Smith, arguably the Legislature’s top budget expert and a chief architect of the legislation that passed, estimated the tax package would close roughly $500 million in tax loopholes.

“I think this is the closest thing we’ve had since I’ve been here to true, total tax reform,” he said.

The tax deal paved the way for the governor to say she would sign a $5.9 billion budget bill, although there may be some line item vetoes. She previously had threatened to veto the entire budget, which will increase spending by $246 million, or 4.4 percent, and call lawmakers back in a special session.

The budget includes a 1 percent pay raise for state employees, including teachers, and a 4 percent pay hike for certain law enforcement officers.

Not everyone was happy with the deal. Rep. Mimi Stewart, D-Albuquerque, called it a “royal screw-job,” saying it will cost the state hundreds of millions of dollars.

But others like Senate President Pro Tem Mary Kay Papen, a Las Cruces Democrat, called it “very responsible,” saying that all sides got some things they wanted, including the governor. “I think it was a good package.”

Gov. Martinez hailed it as “a victory for New Mexico.”

Other business-friendly measures the governor is expected to sign include a plan to reform the state’s unemployment fund and a long-sought bill to give Spaceport America parts manufacturers liability protection from some lawsuits. Lawmakers also passed a bill that would increase the state minimum wage from $7.50 an hour to $8.50, but the Governor’s Office has promised a veto after a Republican counteroffer to raise the minimum to $7.80 died on a tie vote in the House.

Congratulations to leadership of both parties and the governor’s office for thrashing out the details and coming up a plan that gives the state a fighting chance. Because in the end, this was about jobs.

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.