When we think about all the public amenities that our tax payments support – roads and highways, schools and education, internet access, parks, public safety, health care, and more – it’s a wonder we don’t celebrate Tax Day (which this year is Monday, April 15).
These amenities are, in fact, what make our modern economy and quality of life possible. Since we all benefit from these amenities, we understand the necessity for everyone to help pay for them – but we know that, too often, those with powerful connections have been able to manipulate the tax code to their benefit.
The New Mexico Legislature recently made some changes to the state’s tax code that eliminated some of the benefits that had been made at the behest of the well-connected. Legislators also made big improvements that will help make our upside-down tax code fairer for the hard-working families who earn moderate wages but pay the highest share of their incomes in state and local taxes.
When you filed your tax return this year, you may have noticed some changes. Maybe you got a smaller refund than usual or you owed more in state taxes. So what happened to the big fairness measures that the state Legislature just passed?
Unfortunately, these changes won’t impact your New Mexico tax return until you file next year.
The only tax law changes that impacted your return this year were from the federal tax package enacted by the federal government in 2017. While there were both winners and losers in this federal reform (spoiler alert: the biggest benefits went to the wealthiest), many New Mexico families may have had a higher tax bill (or gotten a smaller refund) because the federal package eliminated exemptions for dependents. While the Trump tax bill made up for this by increasing the standard deduction, this increase was not enough to cover the lost dependent deductions when families with multiple children filed their state taxes.
One of the changes the New Mexico Legislature made during the 2019 session was a “fix” for this. Starting next year, families with more than one child will be able to take a $4,000 deduction for each child beyond the first. This will save New Mexico families an estimated $28 million in state income taxes.
Another change New Mexicans will see in 2020 is a substantial increase in the Working Families Tax Credit. Now worth 10 percent of the federal Earned Income Tax Credit, the value will rise to 17 percent of the EITC next year. The EITC, which returns money to hard-working families who earn low incomes, is one of the most effective anti-poverty programs ever enacted. This increase in the state tax credit will put an additional $40 million into the hands of families who qualify for the EITC. In Santa Fe County alone, working families will receive an additional $1.7 million – and studies show they will spend most of it right in their local communities on necessities like groceries, rent, and car repairs.
The Legislature made some other changes – including closing a loophole that out-of-state corporations use to avoid paying New Mexico taxes, and leveling the playing field for local businesses by taxing all internet sales – that will raise money so we can pay our teachers more, rebuild our mental health system, fix our roads, and more.
So if your tax return had some unwelcome surprises this year, take a deep breath. It’s likely to improve next year, and it’s definitely going to improve for New Mexico’s working families. And that – along with the fact that every Tax Day means we’re able to pay our teachers and firefighters, fix our potholes, and invest in libraries and parks – is a reason to celebrate on Monday.
James Jimenez is executive director of New Mexico Voices for Children.