Copyright © 2019 Albuquerque Journal
SANTA FE – More than 120 tax breaks are costing the state hundreds of millions of dollars a year.
But precisely how much money the state gives up isn’t actually clear – even to the legislators who have to decide which tax breaks to keep and which to discard.
A 250-page report issued by Gov. Michelle Lujan Grisham’s administration on Wednesday illustrates many of the challenges that will face policymakers as they try to overhaul and simplify New Mexico’s tax code.
For one thing, some of the tax information is confidential by law – to protect the privacy of taxpayers – leaving lawmakers with little idea how much certain tax breaks cost the state.
At least 10 tax breaks have so few qualifying taxpayers that it would violate privacy protections to share how much the credit, deduction or exemption actually costs the state in any particular year. Certain tax policies related to uranium, employment of veterans and aircraft sales, for example, are in this category.
For lawmakers, it’s a source of frustration.
Senate Majority Leader Peter Wirth, D-Santa Fe, said Wednesday that he hopes lawmakers will renew their push for a law that would allow staff economists to have access to some confidential taxpayer information. The data sharing would be limited to economists in a few departments to aid in analyzing tax policy and forecasting revenue.
Such a proposal, Senate Bill 151, cleared one committee this year but didn’t reach the Senate floor.
“We can’t do anything without the data,” Democratic Sen. Clemente Sanchez of Grants said Wednesday as he presided over a meeting of the Revenue Stabilization and Tax Policy Committee.
‘Not the end step’
A new report issued by the state Taxation and Revenue Department triggered much of the discussion Wednesday. The 2018 Tax Expenditure Report analyzes the cost of a variety of state tax breaks.
The report was largely prepared last year – before Lujan Grisham took office – but hadn’t been released. No one explained why.
The most expensive tax break listed in the report centers on the state’s 2004 decision to repeal the gross receipts tax on some food, such as groceries.
The forgone tax revenue – and an associated payment to local governments to help offset the loss – cost New Mexico’s general fund about $250 million in the 2018 fiscal year, according to the report. A similar tax break involving prescription drugs cost about $170 million.
No other tax break comes close to those two line items. But other significant tax breaks in fiscal 2018 touched on health care services, nonprofit corporations and film and television production.
Clinton Turner, tax policy director of the Taxation and Revenue Department, encouraged lawmakers to scrutinize tax breaks in the same way as other types of spending. The department, he said, will work to make the document more useful in future years as lawmakers explain what information they want.
“It’s an important tool for transparency,” Turner said of the report, but “not the end step.”
Legislators made it clear Wednesday that they want more data that helps them evaluate what tax breaks are serving their intended purpose and which are no longer necessary.
State officials have approved dozens of tax breaks over the years, usually aimed at promoting job creation or economic development. But Democratic and Republican lawmakers alike have expressed support for taking a fresh look at whether the tax breaks are effective.
“I’m very concerned that we’re giving money away,” said Sen. John Arthur Smith, a Deming Democrat and chairman of the powerful Senate Finance Committee.
Few easy choices
The new report also highlights how difficult it would be to reduce the state’s gross receipts tax by just 1 percentage point.
It would cost about $600 million to $700 million to reduce the tax rate by one point – an amount roughly equal to what the state gives up through tax breaks on food, medicine, nonprofit groups and film production.
In other words, there are few easy choices if lawmakers are to succeed in a longtime, bipartisan goal – broadening the tax base and lowering the tax rate.
Sen. William Sharer, R-Farmington, said the tax report also underscores the complexity of the tax code. The report lists 123 tax credits, deductions and exemptions.
“Simplicity needs to be one of our driving forces here,” Sharer said.
Film tax credits
Even as lawmakers consider eliminating some tax credits, other tax credits are growing.
New Mexico expects the amount it pays out in film tax credits to double over a four-year period, from about $81 million this year to $165 million in fiscal 2023.
Representatives of the state Economic Development Department told lawmakers Wednesday that they are working to collect and share more data to help lawmakers evaluate the economic impact of the film tax credit.
They estimate that the film industry pays better than the state average and that it’s responsible for about 8,000 jobs altogether, in direct and indirect employment.
Sen. Jim White, R-Albuquerque, said the size of the film industry demonstrates the importance of scrutinizing whether the tax credits are worthwhile.
“The thing that’s scary,” he said, “is the more they spend, the more we have to give them.”
Lujan Grisham last week announced the creation of two task forces to study New Mexico’s tax system and recommend possible changes. She has been an enthusiastic supporter of the film industry and successfully pushed this year to more than double the cap on how much the state can pay out each year in incentives.