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SANTA FE – A rapidly evolving tax package that would expand two tax breaks for low-income New Mexico workers while raising tax rates on wealthier state residents and some businesses inched one step closer to final approval Saturday.
The Senate Taxation, Business and Transportation Committee voted 7-4 to advance the House-approved legislation, House Bill 291, after tacking on several changes.
The changes include phasing out 2013 corporate income tax cuts signed into law by then-Gov. Susana Martinez and revising income thresholds for new proposed personal income tax brackets.
However, Senate Majority Leader Peter Wirth, D-Santa Fe, withdrew several amendments he had previously proposed, including an increase in New Mexico’s tobacco tax rates and a modest decrease in the state’s gross receipts tax base rate.
Wirth said an expected influx of federal stimulus dollars and a projected $2.7 billion in cash reserves give the state some “cushion” to make sweeping changes to its tax code.
“The time to have this discussion is right now,” Wirth said Saturday.
He also said the legislation, in its current form, could cost the state roughly $60 million in the coming budget year, but would generate additional revenue in future years.
Some senators questioned the timing of the tax package given the state’s revenue outlook, however, with Sen. Bill Tallman, D-Albuquerque, asking, “Why are we trying (to raise taxes) when we’re so flush with revenue coming in?”
But Tallman ultimately joined the committee’s other six Democrats in voting to advance the bill to the Senate Finance Committee, while the panel’s GOP members voted in opposition.
The original tax measure would expand two different tax credits for low-income New Mexico workers while setting a higher tax rate for top-earning state residents.
Those provisions would remain in the bill under the proposed changes, as would a new top state personal income tax bracket of 6.2%. That rate would apply to annual income over $622,000 for married couples filing jointly, and for income in excess of $415,000 for single individuals.
New Mexico’s top personal income tax bracket is currently set at 5.9% under a 2019 law, but had been at 8.2% before a 2003 tax cut pushed by then-Gov. Bill Richardson took effect.
Backers of the bill say it would make New Mexico’s tax code more progressive, while also diversifying the state’s revenue base. Money from taxes and royalties on oil and natural gas industries, a historically volatile revenue source, currently make up more than 40% of total state revenues.
But critics of the tax package say the higher rates could be harmful for businesses already struggling due to the COVID-19 pandemic.
“This is a direct hit on a lot of small businesses,” said Sen. Ron Griggs, R-Alamogordo.
In addition to the personal income tax changes, the bill would make it easier to qualify for both 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.
The changes would allow New Mexicans ages 18 to 24 and those working legally who are not U.S. citizens to qualify for the tax benefits.
The tax package now advances to its final assigned committee, the Senate Finance Committee, with one week remaining in the 60-day legislative session.