Gov. backs bill to exempt Social Security benefits from tax - Albuquerque Journal

Gov. backs bill to exempt Social Security benefits from tax

Several bills have been filed during this year’s 30-day legislative session dealing with taxation of Social Security benefits. Gov. Michelle Lujan Grisham threw her support behind one of the proposals on Thursday. (Eddie Moore/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

SANTA FE – A plan to exempt Social Security benefits from taxation in New Mexico could be picking up steam after Gov. Michelle Lujan Grisham threw her support behind the idea this week.

While similar proposals have stalled at the Roundhouse in recent years, at least five bills dealing with the taxation of Social Security retirement income have been filed already, by a mix of Democrats and Republicans, during the 30-day legislative session that started Tuesday.

And the Governor’s Office said Thursday it is specifically backing one of those bills – a measure sponsored by Sen. Michael Padilla of Albuquerque.

In an interview, Padilla said he feels confident lawmakers will end up approving the measure, Senate Bill 108, during this year’s session.

“This is the perfect year to do it because of the revenue-generating capacity we have right now,” said Padilla, a third-term Democrat who predicted much of the extra income retirees would have if the legislation is enacted would be pumped back into New Mexico’s economy.

New Mexico is currently one of only 13 states that tax Social Security benefits, according to Think New Mexico, a Santa Fe-based think tank that has advocated for the tax to be fully or partially repealed.

The state’s personal income tax was not levied on Social Security benefits until 1990, when a provision buried in a tax bill triggered the change.

However, recent proposals to exempt Social Security income from taxation have stalled at the state Capitol, in part due to concerns such a change would carry a hefty revenue hit – the annual cost was estimated at $83 million last year – and could ultimately benefit high-income retirees the most.

That’s because New Mexico’s personal income tax is currently only levied on income above $24,800 annually for a married couple filing jointly.

But Padilla, who has also pushed similar legislation in recent years, said eliminating the tax on Social Security benefits would ultimately help all New Mexicans and could make the state more attractive to retirees.

“The bottom line is folks are living longer,” he said. “Their income has to be stretched not for five or 10 years but often for 30 years.”

During her State of the State address, Lujan Grisham made a similar argument.

The Democratic governor, who signed 2019 legislation that raised personal income tax rates for high-income New Mexicans and expanded tax breaks for low-income residents, said tax relief for New Mexico families would bolster the state’s economy.

Specifically, she called for a reduction in the state’s gross receipts tax base rate and for Social Security retirement income to be exempted from taxation.

“We must unburden the New Mexicans who rely on Social Security benefits by cutting their taxes,” Lujan Grisham said. “This is good government, serving the people who have asked us to serve them.”

But there are different approaches even among supporters of removing the tax on Social Security retirement income.

One measure, Senate Bill 49, sponsored by Sen. Bill Tallman, D-Albuquerque, would increase the state’s tax rate on tobacco products to offset the revenue impact to the state caused by exempting such retirement benefits from taxation.

Other measures, including Padilla’s, call for straightforward exemptions regardless of income level, though at least one proposal would gradually implement the change over time.

Lujan Grisham spokeswoman Nora Meyers Sackett said Thursday the legislation supported by the governor does not include a revenue offset, though it could be amended as it advances through the Legislature.

“Our focus as a starting point is exempting Social Security benefits from taxation, and with record state finances, this is the time to make that a reality for New Mexicans,” Sackett said in a statement.

The issue of taxing Social Security benefits is also supported by most, if not all, Republican lawmakers.

Top Senate Republicans signed onto a bill filed Thursday, Senate Bill 121, that is similar to the bill introduced by Padilla.

“There has never been a more important time to give our seniors some tax relief, especially those who are caregivers and those on a limited, fixed income,” said Sen. David Gallegos, R-Eunice.

Fully eliminating the tax would keep nearly $700 a year in the pockets of the average senior, according to Think New Mexico.

Meanwhile, the number of senior citizens living in New Mexico has steadily increased in recent years, while the state’s overall population has grown at a slower rate.

New Mexicans age 65 or older were estimated to make up 18% of the state’s population as of last year – up from 13.2% in 2010 and 11.7% in 2000, according to the U.S. Census Bureau.

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