SANTA FE — A generous tax package taking shape at the Roundhouse would deliver $500 rebates to each tax filer, cut income taxes and reduce the gross receipts tax paid by shoppers at the register.
The proposal would also expand tax credits for rural health care providers and families with children.
And unlike an earlier version of the bill, it wouldn’t raise income taxes on high-earning households — a move legislators said reflected a desire to avoid raising costs on doctors and small-business owners.
The package would cost New Mexico roughly $1.2 billion, a figure made possible by an oil boom.
“This package is truly transformational,” said Rep. Derrick Lente, a Sandia Pueblo Democrat who assembled the legislation.
The House voted 50-18 in favor of the proposal Sunday as seven Republicans joined all Democrats in support.
Rep. Jason Harper, a Rio Rancho Republican who supported the bill, called the size of the tax package “unheard of.”
“We’ve never seen something like this before,” he said. “This is really an opportunity to do some great things.”
The debate, of course, isn’t over.
The proposal, House Bill 547, now heads to the Senate in the final six days of the session. It’s common for the two chambers to develop different tax priorities, resulting in last-minute negotiations to reach agreement.
All 18 dissenting votes Sunday came from Republicans, who sought unsuccessfully to strip some tax increases out of the package.
While the proposal would cut state revenue overall, the bill includes about $95 million in tax increases through changes to the capital gains deductions and higher tax rates on alcohol and cigars.
The capital gains change, Republicans said, was particularly problematic because it would discourage business investment. And they argued it isn’t necessary to raise any taxes when there’s a budget surplus.
Republican Rep. Larry Scott of Hobbs said the amended version of the tax package — dropping the higher income tax brackets — was a huge improvement.
But “I do not believe it goes quite far enough,” he said of the new version.
$500 rebates per filer, $1,000 for married couples filing jointly
The tax changes come as state revenue hits record highs, driven by an oil boom in the southeastern New Mexico and uptick in consumer spending. State economists have forecast a potential budget surplus of $3.6 billion next year — the difference between current spending and projected income.
But the tax package endorsed by the House is bigger than expected. An earlier version of the state budget proposal left room for about $1 billion in tax cuts.
Rep. Harper, who for years has pushed for changes to the tax system, estimated Sunday’s measure would cost about $1.2 billion — half of which would be dedicated to one-time rebates.
Individual filers would get $500 each, and couples filing jointly would get $1,000.
The other half of the tax package — including changes to gross receipts taxes and income taxes — is expected to cost about $600 million, an ongoing expense in future years.
The exact cost is difficult to estimate because lawmakers amended the tax proposal repeatedly during Sunday’s debate.
Parts of the measure are intended to make New Mexico’s personal income tax system more progressive, allowing low- and middle-income families to pay a smaller share of their income in taxes.
The bill, for example, would sharply expand child income tax credits, allowing up to $600 per child, depending on the household’s income level. There’s also a provision expanding who qualifies for a rural health care practitioner tax credit.
For any tax filer, the legislation would cut tax rates for the first $50,000 of a household’s income. No one would see an increased tax bracket.
“We’re going to cut taxes for all New Mexicans,” Rep. Nathan Small, D-Las Cruces, said.
The measure also touches on gross receipts taxes, which are levied on most goods and services, similar to a sales tax.
The bill would result in a reduction of 0.625 percentage points by July 2024. Gross receipts tax rates vary throughout the state, but the change would be enough to reduce the rate in Albuquerque from 7.75% to 7.125%.
Changes to the package, of course, are still likely.
The Senate is free to amend the bill, which would send it back to the House for consideration of the changes.
The legislative session ends at noon Saturday.
New Mexico tax proposal at a glance
Rebates: About $600 million in one-time rebates would be issued. Individual tax filers would get $500 and couple filing jointly would get $1,000 this year.
Gross receipts tax: About $350 million in cuts next year, $470 million a year when fully phased in on July 1, 2024. The change would shave about 0.625 percentage points off the rate. In other words, the rate would go from 7.75% in Albuquerque to 7.125%, absent other changes.
Income taxes: About $120 million in cuts, largely to help lower- and middle-income filers. The highest tax brackets wouldn’t be changed.
Child income tax credit: About $100 million in expanded child tax credits, up to $600 per child depending on the family’s income.
Tax increases: The tax package would offset some of the lost revenue by raising an estimated $95 million by reducing the capital gains deduction and increasing taxes on alcohol and cigars.