Tax changes only a piece of jobs puzzle

Business advocates got most of the tax changes that they wanted from the 2013 legislative session.

What good they will do New Mexico’s stagnant economy remains to be seen.

The goal was to make New Mexico competitive with surrounding states, so the Legislature tried to approximate tax treatment found in Arizona, for one, by lowering marginal corporate income tax rates and allowing corporations to calculate their taxes entirely on the amount of their sales within New Mexico, an approach known as single sales factor.

Arizona adopted those changes to persuade First Solar to expand its manufacturing in the state. New Mexico’s goal was in part to persuade Intel to expand here rather than in Arizona or Oregon, where Intel has chip fabrication plants and single sales factor is offered.

There is nothing wrong with wanting to give Intel or Ethicon or Fidelity or Hewlett-Packard reasons to expand operations here, but business and political leaders who worked hard to enact the tax changes expect much more than that from rate reductions and single sales factor.

Having, as they say, leveled the playing field, the hope is that economic developers and public officials will have a better message when they pitch New Mexico to businesses we’d like to see locate here, expand here and hire here.

For all I know, there are huge trucks loaded with relocating businesses’ furniture idling just outside our borders ready to move in the second the new tax laws start taking effect (metaphorically speaking, of course).

However, as the always-sober, always-insightful New Mexico Tax Research Institute points out in its most recent newsletter, the changed tax code “does not necessarily mean New Mexico’s economic woes are over, as tax cuts can make a difference in some cases, are more meaningful to some than others, but aren’t ever the be-all-to-end-all and rarely pay for themselves.”

The changes target manufacturers and corporate headquarters operations. The soon-to-be-replaced tax treatment uses a company’s New Mexico payroll and the property it owns here, plus its in-state sales, as the basis of taxation.

That treatment has the perverse effect of penalizing companies for doing exactly what we want them to do: We raise their incomes taxes when they hire more people and install new equipment in New Mexico. Single sales factor eliminates that penalty.

Is that enough to get manufacturers and corporate headquarters operations to locate in New Mexico? Maybe, if our lack of water, remote location, limited infrastructure, high school dropout rate, poor airline connections, pervasive poverty and lack of a high-level, experienced corps of managers are not impediments.

Organizations like New Mexico Voices for Children argue that the evidence that tax cuts spur economic growth is slim.

The tax dollars we give up in hope that someone will add jobs here would be better spent improving roads, educating children and reinforcing our social safety net, the organization contends.

Business advocates know and care about all these issues, of course, but the issue that seems to be highest on their list lately is enactment of right-to-work legislation, which is already in place in Arizona, Utah, Texas and Oklahoma.

Right-to-work laws (labeled by labor unions as right-to-work-for-less laws) allow unionized workers to refuse to pay union dues and allow workers in unionized shops to refuse to join a union.

Economic development folks have begun to say that just as our corporate income tax treatment kept companies from considering New Mexico as a relocation site, so does our lack of a right-to-work law.

The Bureau of Labor Statistics reports that 6.8 percent of New Mexico’s workforce is unionized. Nationwide 11.3 percent of workers belong to labor unions.

Membership rates are 6.4 percent in Oklahoma, 6 percent in Arizona, 5.8 percent in Utah and 5.2 percent in Texas. New York’s workforce is 24.1 percent unionized.

Economic developers say tax changes and right-to-work don’t guarantee New Mexico will attract new business.

They allow New Mexico to make it through the first cut when companies are considering relocation and expansion. Then we sell New Mexico on its merits.

For some companies, the merits include generous tax breaks. That’s what got the film industry here and, arguably, that is all that keeps it here.

For Urenco, which recycles nuclear materials, it was New Mexico’s wide-open spaces, affordable land, competent workforce and the way the local population in Lea County embraced the project.

We lose projects for all kinds of reasons: distance to markets, confusion over our gross receipts tax, poor public schools.

Anyone who thinks tax codes and right-to-work by themselves are going to solve New Mexico’s economic problems will be disappointed. At most, they will give our sales reps a chance to make a pitch.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 505-823-3896 or wquigley@abqjournal.com. Go to ABQjournal.com/letters/new to submit a letter to the editor.
— This article appeared on page A1 of the Albuquerque Journal