SANTA FE – With the clock ticking toward adjournment, lawmakers signed off on Saturday on a plan that could provide tax relief to some state residents while increasing the tax burden on others – including the highest-earning New Mexicans.
The tax package was a product of 11th-hour negotiations between Democratic lawmakers and Gov. Michelle Lujan Grisham, along with top budget experts in her administration. It passed the House on a voice vote Saturday morning, and the Senate approved it 23-18 about 15 minutes before adjournment.
While some Republican lawmakers blasted the bill as an unnecessary tax hike at a time the state sits on an estimated $1.2 billion budget surplus, backers said it would create more stable revenue streams and a fairer tax code.
“The best time to fix your roof isn’t when it’s raining – it’s when the sun is shining,” Lujan Grisham said in a post-adjournment news conference.
She also described the tax package as the most “responsible and creative” tax legislation she had ever seen in New Mexico.
But reaching a deal wasn’t easy.
The Senate had previously balked at a tax proposal approved by the House, and only advanced the bill after cutting out some provisions – including the proposal to create new personal income tax brackets for the wealthy – and downsizing others.
After the House resisted those changes to the measure, three representatives from each chamber were appointed to try to tailor a compromise.
A deal was eventually reached after Roundhouse meetings – brokered by Lujan Grisham and involving lawmakers, Cabinet secretaries and top Governor’s Office staffers – that lasted until after midnight and resumed early Saturday morning.
“We don’t want to be like Washington, D.C., because they don’t get anything done,” said Sen. Clemente Sanchez, D-Grants, during a Saturday morning conference committee meeting. “We’re trying to get something done here.”
But critics of the legislation, House Bill 6, described it as a tax hike disguised as tax reform.
“We’re not really broadening our base – we’re increasing taxes,” said Rep. Jason Harper, R-Rio Rancho, who pushed unsuccessfully in previous legislative sessions to eliminate gross receipts tax exemptions and lower the state’s base rate.
“I feel like we’re in the position of raising taxes right now because we’re spending too much money,” Harper added.
The final version of the tax package authorizes state and local governments to start levying a tax on online sales – a 2018 U.S. Supreme Court ruling allowed states to do so – and requires nonprofit hospitals to pay the same gross receipts tax rate that other hospitals do.
But hospitals could see that tax hit largely offset by a proposed Medicaid provider rate increase that’s included in a separate bill, a $7 billion budget plan that lawmakers signed off on late Friday.
In all, the tax legislation would generate an estimated $70 million in additional revenue for the state in the coming budget year, though that figure that could be even higher.
That money would help ensure the state has at least 20 percent of its budget set aside in cash reserves as a buffer in case projected revenues don’t materialize, said Finance and Administration Secretary Olivia Padilla-Jackson, the governor’s top budget official.
“This is just to make sure we have those reserves in place and have stable revenue going forward,” Padilla-Jackson told the Journal.
Meanwhile, New Mexico’s cigar tax rate would be decreased under the tax package – though taxes on cigarettes would go up and a new tax would be levied on vaping products.
In addition, the tax legislation would expand an existing tax break for working families and create a new tax deduction for New Mexicans with multiple children that is intended to offset the state-level impact of a 2017 federal tax law signed by President Donald Trump.
In addition, some revenue generated by a higher tax rate on New Mexico motor vehicle purchases – the state vehicle excise tax rate would go from 3 percent to 4 percent – would be diverted to pay for road repairs in the state’s southeast corner, the site of an oil drilling boom.
Income tax changes
The personal income tax changes in the final package would be smaller in scope than originally proposed by the House and contingent on state revenue levels.
But, if enacted, they would represent the first personal income tax increase since former Gov. Bill Richardson, a Democrat, signed off on 2013 sweeping tax cuts that were touted as a way to make New Mexico more economically competitive.
Rep. Javier Martinez, D-Albuquerque, argued during this year’s session that promise never materialized.
He also said the proposed changes included in the tax package would reduce the regressive nature of the state’s personal income tax code more.
“One of the top priorities was to bring more progressivity to the personal income tax code,” Martinez said Saturday.
In the bill’s final version, the income tax changes would not take effect until January 2021.
At that time, a new top personal income tax bracket of 5.9 percent would be created for individuals who make more than $210,000 annually. The state’s top bracket is currently 4.9 percent.
For married couples filing jointly, the same new tax bracket would apply to annual income in excess of $315,000.
But the income tax changes would only be implemented if state revenue levels in the coming budget year – starting July 1 – do not exceed current year levels by more than 5 percent.
The personal income tax changes, along with a proposed reduction of New Mexico’s capital gains tax deduction, drew criticism from some lawmakers.
“I don’t know why we want to punish people who are successful,” said Sen. Cliff Pirtle, R-Roswell.
On Saturday, the revised tax package passed the House on a voice vote about a half hour before adjournment, without debate or explanation.
House Speaker Brian Egolf, D-Santa Fe, said afterward that an earlier version of the proposal had already been the subject of hours of debate. And Republican and Democratic lawmakers had been briefed beforehand by their representatives on the conference committee.
It was a tougher sell in the Senate, since at least one Republican, Sen. Mark Moores of Albuquerque, threatened to filibuster the tax package, which would have caused its demise.
But Moores ultimately yielded the Senate floor with about 20 minutes left in the session, saying he wanted the body to vote on the measure.
The 23-18 vote to approve the revised tax package that took place shortly thereafter saw three Democrats cast “no” votes – Sens. John Sapien of Corrales, Joseph Cervantes of Las Cruces and Gabriel Ramos of Silver City.
One Republican senator, Gay Kernan of Hobbs, joined with the Senate’s remaining Democrats in supporting the legislation.
Journal Capitol Bureau reporter Dan McKay contributed to this report.