WASHINGTON – New Mexico Republicans and business leaders described a sweeping tax overhaul proposal unveiled in Congress on Thursday as potentially helpful to the state’s stagnant economy, while congressional delegation Democrats said it would shortchange low- and middle-income New Mexicans.
The centerpiece of President Donald Trump’s domestic agenda would slash the corporate rate and reduce the personal income taxes of most Americans, but it would also phase out some popular deductions and add $1.5 trillion to the national debt.
Trump visited Republicans on the House Ways and Means Committee on Thursday to congratulate them on their plan. He said the proposed changes to the tax code are “another important step toward providing massive tax relief for the American people.”
“My tax reform priorities have been the same since Day One: bringing tax cuts for hardworking, middle-income Americans; eliminating unfair loopholes and deductions; and slashing business taxes so employers can create jobs, raise wages and dominate their competition around the world,” Trump said.
Eager for a domestic policy victory after a GOP effort to repeal and replace Obamacare failed over the summer, Trump told congressional Republicans on Thursday that he wants the tax bill on his desk by Thanksgiving. GOP House members, mindful of a fierce partisan fight ahead, say a Christmas timeline is more feasible.
Under the plan, middle-income families would pay less, thanks to a doubling of the standard deduction and an increase in the child tax credit. Wealthy Americans, including Trump, would benefit from the repeal of the alternative minimum tax and phaseout of the estate tax. Republicans calculate that a family of four with a median $60,000 income would receive a tax cut of almost $1,200. However, many two-income, upper middle-class families would pay more after being bumped into a higher tax bracket and losing a valuable deduction on state income taxes.
The plan would shrink the number of tax brackets from seven to four, with respective rates of 12 percent, 25 percent, 35 percent and 39.6 percent. The tax system would be simplified, and most people would be able to file returns on a postcard-sized form.
The proposal would leave intact the existing rules on 401(k) retirement accounts and the ability of Americans to contribute up to $18,000 a year into the accounts tax-deferred. But it would limit the widely used deduction for mortgage interest to new home loans of $500,000 or less, a sharp reduction from the current $1 million cap.
The four Democrats in New Mexico’s congressional delegation swiftly denounced the proposal as a giveaway to the rich. Sen. Tom Udall, D-N.M., said the tax package “is full of inequity.”
“It eliminates deductions for state and local income and sales taxes, a key provision for many middle-class families across the country, while repealing the estate tax for the super-wealthy,” Udall said. “It gives big corporations a permanent tax break, while eliminating personal exemptions and the student loan deductions.”
Rep. Steve Pearce, a New Mexico Republican who is running for governor in 2018, said the legislation would “empower the middle class,” while tax breaks for businesses would mean more jobs.
“By lowering the corporate tax rate, manufacturing can once again return to the United States, bringing with it good-paying jobs for people across the nation,” he said. “It is time New Mexicans have a simple, fair and modernized tax code.”
John Garcia, head of the Home Builders Association of Central New Mexico, said New Mexico builders – 90 percent of whom are independent operators – welcome federal tax breaks and market certainty that encourages them to invest. Although national homebuilders grumbled about the impact of slashing mortgage interest deductions on home growth, the median price of a home in Albuquerque is just $219,000.
“We’re still hurting. We still haven’t pulled out of the recession in New Mexico,” Garcia said. “We are hopeful that (the overall tax package) will stimulate the economy and improve conditions for people who are putting their risk and everything they’ve got into building houses.”
Terri Cole, president of the Greater Albuquerque Chamber of Commerce, sounded an optimistic note about the tax plan’s impact on business, and said the chamber would analyze its impact on New Mexico in the days ahead.
“While we have not studied the bill in its entirety, making the tax system more effective and business-friendly is good for all of us,” Cole said.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, said that although the package eliminates some deductions to help pay for cuts, it “continues to rely on unrealistic economic growth assumptions to justify its cost.”
“Even a $1.5 trillion increase in the debt amounts to almost $12,000 per household — a steep price passed on to our children,” MacGuineas said. “While it is encouraging to see the House move forward on tax reform, it seems each new vote and milestone is a step backwards for the cause of fiscal responsibility.”
The Associated Press contributed to this report.