New Mexico’s gross receipts or sales tax system is a mess. It is undermined by 383 loopholes, exemptions and deductions for a grab bag of things ranging from fuel for space vehicles to professional boxing matches to recreational vehicle sales. Rep. Jason Harper, R-Rio Rancho, has been thoughtfully leading the fight to close these and dozens of other loopholes and to use the resulting revenue to reduce overall tax rates.
But unlike the special-interest loopholes that HB 412 seeks to close, the food-tax exemption benefits hundreds of thousands of low- and middle-income New Mexico families, as explained most recently in these pages by the New Mexico Voices for Children. As a consequence, the food-tax exemption enjoys wide public support.
Simply put, reimposing the tax on food does not belong in a tax-reform package.
Unfortunately, some senators would like to hijack this tax-reform effort by putting the food tax back into HB 412 or another bill related to the budget, as Gov. Martinez revealed on Tuesday. The food-tax exemption is a big target, worth tens of millions of dollars. Unlike the exemptions, deductions and credits that benefit narrow special interests, the food-tax exemption does not have professional lobbyists defending it. This makes it an attractive target any time there is a budget crunch.
However, one of the core purposes of tax reform is to make New Mexico’s tax system less idiosyncratic and more like the tax structures of other states. Taxing food would take New Mexico in a very different direction from the vast majority of states.
Two-thirds of other states (34) do not impose a sales tax on groceries. This includes our neighbors: Arizona, Colorado and Texas. Before New Mexico repealed its tax on food in 2004, many residents of Las Cruces would drive to El Paso for their weekly grocery shopping, and while they were there, they would shop at other stores in the mall, eat at a restaurant, see a movie and then return with their wallets empty.
HB 412 would also tax prescription medications, like those that lower blood pressure and treat chronic illnesses like diabetes. Illinois is currently the only state in the nation that taxes the sale of prescription medicines, according to the Federation of Tax Administrators.
What if instead of taxing necessities like baby food, fruits, vegetables, and prescription medicines, we taxed alcohol, tobacco, and e-cigarettes somewhat more heavily?
All taxes have collateral negative consequences, but the taxes on alcohol and tobacco actually yield social benefits. Numerous studies have found that higher taxes help discourage young people from smoking and drinking because young people have less discretionary income and are more sensitive to price increases.
In addition, the taxes on alcohol and tobacco do not generate sufficient revenue to compensate the state for the heavy costs of these products, from health care costs to law enforcement expenses.
According to the U.S. Centers for Disease Control and Prevention, New Mexico experiences more alcohol-related deaths per capita than any other state in the nation, including deaths from things like DWI and liver cirrhosis. Yet New Mexico’s excise tax rate on hard liquor is only the 22nd highest in the country. Meanwhile a loophole in the tax code has meant that e-cigarettes have escaped being taxed in the tobacco excise act, so they are taxed much more lightly than any other tobacco product.
Taxes on alcohol and tobacco are the only taxes that the public supports. According to a January 2017 poll by Research & Polling, 66 percent of New Mexicans support increasing taxes on alcohol and tobacco, with only 19 percent opposed and 14 percent neutral. Naturally, unlike food, alcohol and tobacco are protected by teams of high-powered lobbyists.
As the Legislature places the final touches on an urgently needed tax-reform effort, we hope that if more revenue is needed, legislators will listen to their constituents who prefer increasing taxes on harmful luxuries like alcohol and tobacco, rather than imposing new taxes on necessities like food and medicine.
To learn more and contact your legislators, please visit www.thinknewmexico.org.