SANTA FE — A massive $959 million tax package unveiled Monday would provide $300 rebates for New Mexico taxpayers, further reduce the state’s gross receipts tax rate, increase alcohol taxes and expand a child tax credit so that parents could get up to a $600 per child tax break, depending on their income level.
The highly-anticipated tax measure, which cobbles together more than a dozen different tax proposals, is aimed at using the state’s unprecedented oil-fueled revenue bonanza to make New Mexico’s tax code more progressive, backers said.
“We believe this affects positive change for the working families of New Mexico,” said Rep. Derrick Lente, D-Sandia Pueblo, who predicted families making the state’s median household income of about $54,000 per year would see about $200 in yearly tax savings from the gross receipts tax cut alone.
But not everyone is thrilled about the tax package.
The proposal, House Bill 547, would also create two new tax brackets in the state’s personal income tax system, including a new top bracket of 6.9% — up from the current 5.9% top bracket — that would apply to income over $500,000 per year for married couples filing jointly.
Rep. Jason Harper, R-Rio Rancho, said during Monday’s meeting of the House Taxation and Revenue Committee that could mean a tax increase for small businesses who pay taxes under the personal income tax code.
He also lamented that Democratic architects of the bill omitted a proposed tax exemption for accountants, architects and other professional services that had been proposed as a way to reduce tax “pyramiding,” or taxes being levied several times on the same goods or services.
“Are we just talking the talk or are we serious about real reform?” Harper said during Monday’s hearing.
The tax pyramiding provision had drawn fierce opposition from Albuquerque and other New Mexico cities and counties, however, as city officials argued it would reduce their revenue streams and complicate efforts to hire more police officers.
Before Monday’s hearing, most tax bills filed during this year’s 60-day legislative session had not been advanced at the Roundhouse, giving lawmakers the ability to decide which proposals to include in the tax package.
The final version of the package is expected to advance quickly to the House floor after passing the House Taxation and Revenue Committee on a 9-5 party-line vote, with Democrats voting in favor and Republicans in opposition.
It could then face additional scrutiny — and possible changes — in the Senate in the final days of this year’s session, which ends March 18.
Tax rebates in the mix, but smaller than previously proposed
About half of the initial cost of the tax package — or about $440 million — would go toward issuing rebates issued to all New Mexicans who filed tax returns in 2021, perhaps by as soon as this spring.
However, the $300 rebates — married couples filing jointly would get $600 rebate checks — are less than half the $750 rebate amount that Gov. Michelle Lujan Grisham proposed in the run-up to this year’s session.
The size of the rebates were scaled back in legislative negotiations, Lente said, because lawmakers have $1 billion in wiggle room to enact tax changes under a $9.4 billion budget bill approved by the House last month that’s still awaiting final approval in the Senate.
“(The governor’s initial plan) would have completely extinguished our ability to do anything tax-wise for the state,” he said.
But Lujan Grisham spokeswoman Maddy Hayden indicated Monday the current proposal falls short of the Democratic governor’s expectations.
“The governor has made it clear to leadership that hard-working New Mexico families deserve more than $300,” Hayden told the Journal. “She will continue to fight to get more dollars in the pockets of New Mexicans, and fully expects the Legislature to boost that number up to at least $500 for single filers.”
As for those who might face a tax increase under the personal income tax code changes, Lente suggested that doctors, engineers and other high-wage earners could afford the increase.
But he also said the proposed gross receipts tax reduction that would take the state’s base tax rate on goods and services from 5% to 4.375% — starting in July 2024 — would be a boon for businesses.
House Speaker Javier Martinez, D-Albuquerque, also insisted the proposed tax package would help businesses, while defending the process used to bring the bill forward.
“There’s nothing in here that’s not fully-vetted, fully-baked and fully-fried,” Martinez said during Monday’s committee hearing.
Tax package draws mixed reactions
The tax package generated different reactions among business and advocacy groups at the Roundhouse.
Greater Albuquerque Chamber of Commerce President and CEO Terri Cole called the legislation disappointing, describing it as the latest in a string of measures backed by the Democratic-controlled Legislature that make it harder for businesses to stay open in New Mexico.
“The last thing we need is capital flight out of New Mexico,” Cole said during Monday’s hearing.
However, Amber Wallin, the executive director of New Mexico Voices for Children, a nonprofit group that’s advocated for the child tax credit and other policies, said more than 90% of state taxpayers would see a tax cut under the proposed personal income tax code changes.
“All of these things improve fairness in the tax code and level the playing field,” Wallin said Monday.
As for the alcohol tax provision, it would raise the tax on beer, wine and spirits by 15 cents per gallon, though local microbreweries, distilleries and wineries would be exempted from the tax hike.
The increased alcohol tax would generate an estimated $35.9 million by the 2025 budget year for a new state fund. That fund would be used to pay for expanded alcohol treatment and prevention programs, as well as support for victims of alcohol-related crimes including domestic violence.
New Mexico has the nation’s highest alcohol-related death rate, at 86.6 deaths per 100,000 people in 2020, and some lawmakers have pushed this session as an even larger alcohol tax hike aimed at reducing consumption.
But that was opposed by alcohol industry lobbyists, who argued such a policy would hurt local New Mexico businesses.