With $3.6 billion at its disposal, the New Mexico Legislature had the chance of the century – possibly the last century – to enact sweeping reforms of the state’s tax structure. The idea, seemingly as professed publicly by those from across the political spectrum, is to diversify the state economy to be less reliant on the vagaries of oil and gas prices.
Unfortunately, even with a positively mind-blowing 42% single-year budget surplus on top of robust spending growth in recent years and a large state and local government structure to begin with, the New Mexico Legislature abjectly failed to address our state’s problematic tax structure.
That means that New Mexico’s job-killing taxation of business service inputs will continue. And, while the gross receipts rate reduction is welcome, it is simply not a game-changer. In fact, GRT rates will remain higher in Albuquerque and most other cities than they were when Bill Richardson left office at the end of 2010.
Worse is the fact the bill contains numerous tax increases, and even more were considered. Shockingly, the original House version of the bill included major personal income tax hikes. When Richardson left office and throughout the Martinez era, New Mexico’s top income tax rate was 4.9%.
That top rate was increased to 5.9% for married couples making more than $315,000 in 2019 during Lujan Grisham’s first year in office. As originally formulated by the House, the bill would have added two new income tax rates of 6.5% and 6.9%. The 6.5% rate would have kicked in at the relatively low level of $200,000 for married couples.
This provision was amended out, but the inclusion of an income tax increase in the first place reflects the Democrat-controlled Legislature’s broader failure to grasp the opportunity at hand. As the final bill was crafted provisions to raise the capital gains and corporate income taxes were retained in the legislation. So-called “sin” taxes on alcohol and cigars were included as well.
If the goal is to diversify the New Mexico economy, you can’t do much worse than to raise capital gains and corporate income taxes. Perhaps the only thing worse is raising these taxes while the Legislature boosts spending by 14% and has a $3.6 billion surplus at its disposal.
While the tax hikes may be the worst part of the bill for businesses, the fact is that numerous other provisions of the legislation are deeply problematic. Subsidies for electric vehicles and charging stations are included. If these technologies are truly the wave of the future, why spend tax dollars on them? The same can be said for subsidies for energy storage systems.
As if those unnecessary subsidies aren’t bad enough, the Senate added massive film subsidies to the legislation. The current $110 million cap on annual film subsidies would be nearly doubled to $210 million. Worse, with another 5% subsidy boost for projects outside of Albuquerque and Santa Fe. Conceivably, some films could attain reimbursement of 40% of their taxable expenses.
Overall, New Mexico politicians are on the verge of squandering a unique chance to use a $3.6 billion surplus to diversify and improve the economy. Sadly, the Legislature has failed. Gov. Lujan Grisham will have a chance to wield her line-item veto pen. Hopefully, she, too, sees the problems inherent in enacting economically harmful tax hikes while also attempting to diversify the economy.
The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.