Recent analysis by the non-partisan Institute on Taxation and Economic Policy confirms what we expected from income tax changes signed into law this year by Gov. Michelle Lujan Grisham – that we have taken a large step toward improving the fairness of our tax system and helping our working families in New Mexico.
The study found that the income tax changes made in HB 6 will cut taxes for 70% of New Mexico families with children, putting $64 million back into their pockets each year. This is mostly thanks to two provisions in the bill: an expansion of the Working Families Tax Credit and a new deduction for dependents that helps reverse a state tax increase on families created by the Trump administration’s 2017 tax changes.
Most of that benefit will flow to lower- and middle-income taxpayers – those who most need it and who will put it directly back into the New Mexico economy through spending on food, clothing and other basic needs.
The expansion of the New Mexico Working Families Tax Credit will help about 212,000 tax filers. The credit is modeled on the federal Earned Income Tax Credit, an effective anti-poverty program that enjoys bipartisan support. The New Mexico credit is now worth 17% of the federal EITC. The credits are larger for families with more dependents and phase out gradually as income rises.
Critics point out that, overall, HB 6 will increase state tax revenue by about $70 million. They question the timing, given the current surplus generated by the state’s oil boom.
But just three years ago, the Legislature was called back into special session to deal with a severe fiscal crisis brought on by a crash in oil prices.
We are grateful that energy revenues are helping New Mexico address so many critical infrastructure and service needs, but we also need to remember that we need diverse, stable revenue streams.
There are other good reasons behind the changes made in HB 6.
The extension of gross receipts taxes to internet sales recognizes the reality of retailing in the 21st Century and levels the playing field for New Mexico businesses. For too long, local companies suffered from a price disadvantage of as much as 9% compared to large, web-based corporations that paid no N.M. taxes.
Similarly, the extension of gross receipts taxes to nonprofit hospitals corrects a decades-old inequity between for-profit and nonprofit hospitals.
Yes, you will pay 1% more in tax when you buy a car, though still considerably less than in neighboring states. But you’ll also have safer roads because the increase in the motor vehicle excise tax is specifically dedicated to addressing road infrastructure. Much of that new revenue will be headed straight to the oil patch to fix and improve roads that aren’t currently able to safely service that area. That’s an investment in safety and New Mexico’s economic future.
And, yes, the state’s wealthiest 3% of personal income tax filers may pay more in income taxes. If state revenues this fiscal year don’t grow by at least 5%, beginning in 2021, a new top 5.9% tax rate on income over $210,000 for single filers – over $315,000 for married couples filing jointly – will take effect. That is up from the previous top rate of 4.9%, but far below the top rate of 8.2% prior to 2003. That change would make New Mexico’s tax code more progressive again.
All told, the changes made in HB 6 help New Mexico’s most vulnerable families, restore fairness to our tax code, provide more stability to state revenues and level the playing field for New Mexico businesses.
Are we open to further reform? Absolutely. That is why Gov. Lujan Grisham created the new Tax Policy Advisory Committee. With its help, we’ll continue to look for ways to fine-tune our tax laws in a manner that will benefit all New Mexicans.