SANTA FE — New Mexico lawmakers were in a tizzy over taxes as they approached the final hours of this year’s 60-day legislative session, with proposed changes to New Mexico’s film incentive program and higher taxes on alcohol at the core of a Roundhouse debate.
The sweeping $1.3 billion tax package that also includes $500 taxpayer rebates — married couples would get $1,000 checks — has grown in both size and scope since being unveiled last week in a House committee.
While both the House and Senate have approved separate versions of the package, the two chambers were at loggerheads Thursday about what provisions should be included and which should be left out.
A group of six members from both chambers met to try to hammer out a compromise in a Thursday evening conference committee — and will meet again Friday morning — after the House refused earlier in the day to go along with Senate changes to the bill that included a larger 5-cent per drink alcohol tax hike and a whittled-down state capital gains tax deduction.
“What I did not expect is the Senate would take many of our balanced compromises and just throw them out the window,” said Rep. Jason Harper, R-Rio Rancho, during a debate on whether to accept the Senate changes.
In another twist, Gov. Michelle Lujan Grisham urged lawmakers to reevaluate the bill before adjourning Saturday, saying the package as proposed “cuts too deep, too quickly” amid a revenue bonanza fueled by record-high oil production, a traditionally volatile revenue source.
“I’m with the Legislature: let’s deliver bold, meaningful tax reform — but let’s also protect our future by making responsible choices today,” Lujan Grisham added in a statement. “Otherwise, public safety, education, and the other critical priorities we all share may end up on the chopping block.”
Lawmakers appeared to have heeded the governor’s warning by late Thursday, with Sen. Benny Shendo Jr., D-Jemez Pueblo, proposing changes that would include a scaled-back reduction to the state’s gross receipts tax rate and a smaller geothermal tax credit.
“We all agree we need to reduce the size of this tax package,” Shendo said.
Crafting tax changes amid a revenue boom
With the state awash in revenue, lawmakers left room for about $1 billion worth of tax changes while approving a $9.6 billion spending plan for the budget year that starts in July. That spending bill has already been sent to the governor’s desk.
But settling on which tax provisions to include in the package has proven to be a political tightrope walk.
The House plan originally included a revised personal income tax structure with two new top brackets for the highest earners — the top bracket would have increased from 5.9% to 6.9% — but reversed course after criticism.
Senate Democrats’ push to raise about $55 million in yearly revenue by a tightening a capital gains tax deduction, which can be claimed for profits made selling stocks or real estate, has also generated opposition, with critics saying it could hurt small businesses.
“This bill is dangerous for business,” said Sen. Stuart Ingle, R-Portales, during a Senate floor debate late Wednesday evening. “Because this is something that is really going to hurt them.”
Sen. William Sharer, R-Farmington, tried unsuccessfully to remove the provision, before embarking on a lengthy late-night monologue on the Senate floor.
He said the tax package would provide millions of dollars in tax breaks to out-of-state corporations and “Christmas presents” to lobbyists who worked to secure that tax provisions were included in the bill.
As for the proposed alcohol tax hike, much of the debate between the House and Senate focused on whether the revenue generated should go solely toward treatment programs in a state with the nation’s highest alcohol-related death rate.
While the Senate initially proposed some of the revenue raised by the 5-cent per drink tax increase should flow into the state’s general fund, they appeared willing to relent on that stance late Thursday.
Time running short to strike a deal
Finding an elusive agreement on a tax package marked one of the biggest items left on legislators’ to-do list with the session nearing its end, with several spending bills already approved.
Senate Majority Leader Peter Wirth, D-Santa Fe, who was among the lawmakers taking part in the conference committee between the House and Senate, put it bluntly when he said lawmakers need to “get this done.”
“There are incredibly solid pieces of legislation in this package and it’s incumbent on us to get it across the finish line,” Wirth said.
The final shape of the tax package was also being watched closely by advocates and lobbyists, dozens of whom attended the conference committee meeting held in a crammed Roundhouse room.
At least some of the debate over the tax package hinges on how many of the provisions should be permanent and how many should be temporary.
The rebates would fall in the latter category, as they would represent a one-time $666 million expenditure.
All state residents who filed 2021 tax returns would receive a $500 rebate check that could be sent out by the state Taxation and Revenue Department by as soon as this spring.
Unlike spending bills, the governor does not have line-item veto authority on tax bills. That means Lujan Grisham would have to either sign or veto the entire measure, when it makes it to her desk.
