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Debate over food tax resurfaces

Copyright © 2019 Albuquerque Journal

SANTA FE – There’s a new food fight brewing at the Roundhouse.

Several influential senators, including Senate Finance Committee Chairman John Arthur Smith, have filed legislation that would bring back the gross receipts tax on grocery items.

Lawmakers repealed the food tax in 2004, and proposals in recent years to reinstate it have been met with fierce opposition.

Smith, a Deming Democrat, acknowledged the idea is unpopular politically but said the food tax exemption has exacerbated flaws with New Mexico’s tax system and placed a burden on the state and local governments.

“We quite frankly made our system more regressive instead of more progressive,” Smith told the Journal.

He also described the legislation as a “message bill,” adding, “If I’m still here five years down the road, I’ll say ‘I told you so.’ ”

Critics of the plan to reinstate the food tax, including Gov. Michelle Lujan Grisham, say bringing it back would hit low-income New Mexicans the hardest.

“The governor opposes a food tax and believes such initiatives disproportionately target the poor and widen the income gap,” Lujan Grisham spokeswoman Nora Sackett said Tuesday.

Two bills dealing with the food tax were filed last week, shortly before the deadline to file legislation for the ongoing 60-day session that ends March 16.

Senate Bill 585, the measure Smith filed with Senate GOP floor leader Stuart Ingle of Portales, calls for a full reinstatement of the state food tax.

An alternative bill, Senate Bill 584, jointly sponsored by Sen. Steven Neville, R-Aztec, and Smith, would authorize New Mexico cities and counties to resume taxing grocery items – meaning such items would be taxed at a lower rate.

Both proposals would also immediately eliminate a state subsidy to city and county governments that’s intended to offset the lost revenue from not taxing food. Those subsidies are already being gradually phased out under the terms of a 2013 tax package.

New Mexico’s gross receipts tax system has increasingly come under the scrutiny of lawmakers in recent years, as a multitude of exemptions, deductions and other breaks enacted over the years have led to an increase in tax rates.

Currently, some cities have overall tax rates in excess of 8 percent, including Farmington, Santa Fe and Las Cruces. The state’s base rate is 5.125 percent, and local taxes are levied on top of that.

Meanwhile, how the food tax fits into the overall tax debate has been a point of contention.

Smith said many rural New Mexico communities have few stable revenue streams, and said allowing them to tax food and grocery items would give them more stability.

“If you’re really going to broaden the base and lower the rate, you’ve got to bring medical (expenses) and food back into the mix,” Smith said.

In addition, there has been debate over how much the food tax affects New Mexico’s poorest residents.

Some backers of reinstating the tax argue that because roughly 222,000 low-income New Mexicans qualify for the federal Supplemental Nutrition Assistance Program, also known as food stamps, they see little benefit from tax-exempt food items and have faced higher taxes on other items.

But others counter that SNAP doesn’t cover all food needs and that those whose income barely exceeds the food stamp eligibility level – currently set at $32,640 annually for a family of four – would face a heavy cost burden if the food tax is put back in place.

Fred Nathan, the executive director of the Santa Fe-based Think New Mexico, is in that camp. His think tank advocated for the 2004 law that removed the tax on grocery items.

“New Mexico’s tax system is a mess and is undermined by more than 300 special interest loopholes, exemptions and deductions,” Nathan said. “So it is puzzling that these bills, rather than focusing on overall tax reform, instead focus on the food tax exemption, the one exemption which benefits hundreds of thousands of low- and middle-income New Mexico families and which enjoys wide public support.”

However, those arguments haven’t stopped attempts to reinstate the tax on food items.

The New Mexico Municipal League, which represents cities and towns statewide, is among the groups that have advocated for at least a partial reinstatement of the tax on groceries.

Legislators actually approved a 2010 plan to impose city and county gross receipts taxes on most food items – in the midst of a state budget crunch – but that proposal was dubbed a tortilla tax by opponents and ultimately vetoed by then-Gov. Bill Richardson.

The two food tax bills filed during this year’s session have both been assigned to the same committees – the Senate Corporations and Transportation Committee and the Senate Finance Committee – and are awaiting their first legislative hearing.

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