ALBUQUERQUE, N.M. — Exhibiting, perhaps, more gumption than sense, four veteran observers of New Mexico’s economy have joined the debate over taxation kicked off last month by my UpFront columns suggesting New Mexico increase taxes and end economic incentives for out-of-state companies.
The four crafted a six-page white paper that says New Mexicans are burdened less by taxes than the average American, gross receipts taxation needs to be reformed, and state government should stimulate our economy through fiscal policy rather than rely on inducements offered to out-of-state companies.
The authors are economic policy consultant Brian McDonald, former head of the University of New Mexico Bureau of Business and Economic Research; New Mexico State University business professor Jim Peach; UNM economics research faculty member Lee Reynis, another former head of BBER; and Chuck Wellborn, an attorney, a founding New Mexico Tax Research Institute board member, and former head of UNM’s economic development operation.
In an email, Wellborn said of the collaboration, “Our sole goal is to get more honest info out there.”
The paper argues that the strength of the gross receipts tax used to be that it was sufficient to keep property taxes “extraordinarily low compared to other states.” As more and more exemptions to the tax have been enacted, the base has narrowed considerably and GRT revenue collection has declined.
The GRT’s weakness is that business-to-business transactions are often taxed. That means the final product delivered to the ultimate consumer may have been taxed multiple times, a phenomenon known as pyramiding.
The GRT is already regressive in that it hits poor people harder than rich people. That regressivity was offset by the 8.2 percent income tax rate on the state’s highest earners until Gov. Bill Richardson persuaded the Legislature to lower the top rate to 4.9 percent. Now couples reporting $24,000 in taxable income pay the same marginal rate as couples reporting $100,000.
Corporate income tax cuts implemented during the Martinez administration further erode state revenues, making GRT collections even more essential to our fiscal stability at the same time we exempt more goods and services from the tax.
The “obvious” choice is to “eliminate most of the (GRT) deductions, exemptions and credits” and reduce the tax rate enough that eliminating those “sacred cows” is politically palatable to their defenders, the four authors said. Pyramiding has to be addressed, as well, if GRT reform is to have a political chance.
A new tax bracket on high-income earners should be considered, as well, to raise more revenue and improve tax progressivity.
The authors say it is simply not true that New Mexicans are unusually burdened by taxes. Because state government pays for many things that local governments pay for in other states, the combined state and local burden has to be considered. When it is, the tax burden in New Mexico as a percentage of personal income is slightly below the national average.
If you exclude from analysis severance taxes on mineral, oil and natural gas extraction – a tax paid by mining and petroleum companies – the burden on New Mexico’s average citizen is reduced further.
The paper does not reject the use, in principle, of tax breaks and other inducements to attract business to New Mexico, but it argues that the state can stimulate the economy with “infrastructure projects that will materially improve the long-term health of the state’s economy,” including roads, airports, Internet connections, innovation districts, university science and engineering laboratories, tenured faculty positions and public school equipment and facilities.
“There always seems to be a fair number of misstatements about New Mexico’s tax system,” and the authors found a few in a recent Rio Grande Foundation commentary published in the Journal.
The foundation, citing the Federation of Tax Administrators, claimed New Mexico’s tax burden as a percentage of personal income was ninth-highest in the nation, but an apples-to-apples comparison requires a comparison of state and local taxes. The paper also says the federation warns readers not to use its data to compare states.
The paper faults the foundation’s finding that state and local government workers are overpaid compared with other workers in New Mexico. The foundation excluded the substantial number of federal employees in New Mexico in its analysis. Including those workers brings state and local government compensation more in line with national averages.
The paper found fault in the foundation’s claim that the state and local workforce is bloated when compared with private sector workers. The analysis again excludes federal workers, who represent a substantial proportion of the state’s population and who rely on services provided by local and state workers. If federal employees are included, the proportion of state and local workers shrinks.
The paper also contends that because employment by Indian tribes, including employment in tribal casinos, is counted as local government employment, the size of New Mexico’s government workforce is overstated.