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Bill would give low-wage workers bigger tax breaks

Upscale homes in the Las Campanas area near Santa Fe, Monday March 1, 2021. A bill that came out of the House Tax and Revenue Committee would remove a 3% cap on property tax for second home purchases. (Eddie Moore/Albuquerque Journal)

Copyright © 2021 Albuquerque Journal

SANTA FE – Two New Mexico tax credits for low-income workers would be expanded under a sweeping tax bill unveiled Monday that would also create a new, higher tax bracket for top-earning state residents.

The proposal, which advanced out of a key House committee, would also allow local governments to generate more revenue by raising an annual property tax increase cap for non-primary residences – a provision aimed at second-home owners in Santa Fe and other parts of the state but which would include some rentals.

Backers of the legislation, House Bill 291, said the overall changes would make New Mexico’s tax code less regressive without leaving a hole in the state’s budget, although they acknowledged they might not be a fix-all.

“We’re asking for those of us who can pay a little bit more … to help support the working families who are not doing so well,” the bill’s sponsor, Rep. Javier Martínez, D-Albuquerque, said during a Monday meeting of the House Taxation and Revenue Committee.

He also said the changes would not hurt New Mexico’s economy, arguing that low-income workers getting more tax relief would end up spending much of the money on basic expenses.

However, critics pointed out that creating a new top state personal income tax bracket of 6.5% – the state’s top rate is currently 5.9% – would make New Mexico even more out of line with neighboring states Utah, Colorado, Oklahoma and Texas, which does not have an income tax.

“This is going to hurt people we’re trying to help right now,” said Rep. Jason Harper, R-Rio Rancho, referring specifically to rural doctors and small businesses.

Several business groups also testified against the proposal, with J.D. Bullington, a lobbyist for the Greater Albuquerque Chamber of Commerce, questioning the need for tax increases with the state sitting on $2.7 billion in projected cash reserves.

But supporters countered by saying that low-income New Mexicans have been hit harder by the ongoing COVID-19 pandemic than have wealthier state residents.

They also argued the changes to the tax code would help diversify the state’s revenue base, which is currently largely reliant on taxes and royalties paid by the oil and natural gas industries.

The measure ultimately passed the committee on a party-line 7-5 vote, with Democrats voting in favor and Republicans in opposition. It now advances to the full House for consideration.

Recent changes

New Mexico lawmakers have made multiple changes to the state’s tax code in recent years.

Those changes include sweeping tax cuts pushed by former governors in 2003 and 2013 that trimmed the state’s personal income tax and corporate tax rates, respectively.

More recently, the Legislature approved a 2019 package that authorized state and local governments to start levying a tax on online sales and required nonprofit hospitals to pay the same gross receipts tax rate that other hospitals do, among other provisions.

This year’s bill, which could still be amended in the coming days, would make it easier to qualify for the Low Income Comprehensive Tax Rebate and the Working Families Tax Credit, which is currently available to those who make less than $15 an hour.

“We know when lower-income workers have more spending power, they use it on essentials to support their families, stimulating the local economy at a time when it is sorely needed,” said Rep. Christine Chandler, D-Los Alamos, one of the bill’s co-sponsors.

Specifically, the changes would allow New Mexicans ages of 18 to 24 and those working legally who are not U.S. citizens to qualify for the tax benefits.

Such a policy shift, along with expanded benefits, would cost the state an estimated $72 million. But the changes would be largely offset by the new personal income tax brackets and proposed limits to a state capital gains tax deduction.

Property taxes

The tax bill moving forward at the Roundhouse could also affect homeowners’ property tax bills.

Specifically, the measure would more than triple an annual property tax evaluation limit – from 3% to 10% – for residential properties that are not their owner’s primary place of residence.

Rep. Matthew McQueen, D-Galisteo, the architect of the provision, said it would leave the existing property tax cap in place for homeowners who live in their homes.

He and other backers of the change said many second-home owners in the Santa Fe area have benefited from a law passed in 2000 that imposed the annual residential property value limits in an attempt to keep elderly residents from being priced out of their homes,

But critics said the proposed change could also lead to higher rents, with owners passing along their higher tax bills to tenants.

“It just feels like we may be making it worse and slightly more hodgepodge by going in this direction,” Harper said.

The tax package is among dozens of bills still in the mix as lawmakers enter the final weeks of this year’s 60-day session, which ends March 20.

Other tax bills under consideration include a larger tax break for veterans and a “tax pyramiding” proposal that would create a new gross receipts tax deduction for accounting services, while also expanding an existing tax break for manufacturing services.

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