Copyright © 2019 Albuquerque Journal
SANTA FE – Personal income tax cuts signed into law in 2003 by former Gov. Bill Richardson would be essentially wiped off the books under a sweeping tax package that’s headed to the House floor.
Members of the House Taxation and Revenue Committee voted 8-5 along party lines Wednesday to approve the measure, which would increase some tax rates – including personal income taxes on higher-earning New Mexicans – while also broadening tax breaks for families.
Backers of the bill, House Bill 6, said the state needs more stable revenue streams to pay for a proposed increase in spending on public schools and other programs.
“If we want to increase our education funding and make it sustainable, we’ve got to diversify our tax base,” said House Speaker Brian Egolf, D-Santa Fe.
New Mexico has an unprecedented budget surplus of more than $1.2 billion, and most of the revenue uptick comes from an oil drilling boom in southeastern New Mexico. Both oil and natural gas are historically volatile revenue sources.
Meanwhile, Egolf disputed suggestions that the bill would hit the pocketbooks of most New Mexicans, saying, “This does not harm the income of working families.”
Republican lawmakers have described the tax package as misguided and unnecessary, while arguing it doesn’t make sense to raise taxes when the state has a budget surplus.
“There’s no need for a $500 million-plus tax increase on the New Mexico public,” said House Minority Whip Rod Montoya, R-Farmington. “I’m not sure how we can justify this.”
Legislative economists previously estimated the bill would generate $323 million during the coming budget year for state spending on roads and government programs. But that figure does not factor in amendments that were tacked onto the bill Wednesday, or its impact on cities and counties.
He also referred to a June 2018 court ruling that New Mexico was failing to meet its constitutional requirement to provide an adequate education to all students. A Democratic-backed $7 billion spending plan passed by the House last week would increase public school spending by $449 million – or roughly 16 percent – over current levels.
“You left us a mess,” Trujillo said at one point, directing his comments toward GOP committee members.
But Republicans countered by pointing out that their party has never simultaneously controlled both branches of the Legislature and the Governor’s Office, as Democrats currently do.
In its current form, the House tax package would generate revenue for the state by increasing the cigarette tax rate, imposing a tax on vaping products and raising the tax on motor vehicle purchases.
It would also allow the state and local governments to start levying a tax on online sales – a 2018 U.S. Supreme Court allowed states to do so – and would require nonprofit hospitals to pay the same gross receipts tax rate that other hospitals do.
As for personal income taxes, the legislation would create several new tax brackets in an attempt to make the tax code more progressive. That would include a new top tax bracket of 6.5 percent – up from the current 4.9 percent.
The legislation would also reduce some taxes – doubling an existing tax credit for “working families” and creating new deductions aimed at offsetting unintended state tax increases caused by the 2017 federal tax overhaul.
Debate on the tax package comes after New Mexico’s last two governors – Richardson and Martinez – signed off on tax cuts aimed at making New Mexico more economically competitive with other states.
Some Democratic lawmakers now say those proposals were mistakes, claiming they have not delivered the promised economic benefits and have, instead, lead to understaffed state agencies.
“We have not laid the foundation that is necessary for the type of growth we have sought for this state,” said first-term Rep. Christine Chandler, D-Los Alamos.
But minority Republicans, who uniformly voted against the tax package Wednesday, described it as a brazen tax increase.
They also pointed out that the legislation would not repeal existing tax breaks or reduce the state’s gross receipts tax rate, a primary goal of previous tax proposals at the Roundhouse.
“We keep saying we have to do this for education, but there’s another way,” said Rep. Jason Harper, R-Rio Rancho, who sponsored some of those past measures.
Although Martinez vetoed several tax increase proposals during her eight years in office, current Gov. Michelle Lujan Grisham, a Democrat, has indicated she suggested at least some provisions in the tax bill moving to the House floor.
That includes the internet sales tax, the change in how hospitals are taxed and the broadening of the working families tax credit, a spokesman said Wednesday.