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Senate OKs $200 Million in Tax Hikes

By Deborah Baker And Dan Boyd
Copyright © 2010 Albuquerque Journal Journal Staff Writers
          SANTA FE — Tax increase bills found traction in the House and Senate, as New Mexico lawmakers closed in on agreement on a $5.6 billion budget for next year.
        The Senate late Tuesday voted 25-15 for a $200 million tax hike package that included a gross receipts tax increase and partial reinstatement of a tax on food.
        Republicans objected but lacked the votes to derail the plan.
        Sen. William Sharer, R-Farmington, said the message from voters was, "Don't tax me more. Cut the fat out of state government."
        Meanwhile, the House prepared to vote on a temporary 75-cent-per-pack increase in the state's cigarette tax.
        Twenty-five cents per pack would go specifically to public schools.
        "I think we're really close to approving a budget deal," Rep. Brian Egolf, D-Santa Fe, said after a House committee recommended the cigarette tax increase.
        As on Monday, the opening day of the special session, lawmakers spent much of Tuesday in closed-door caucus meetings as lobbyists, interested citizens and state agency heads milled about in Capitol hallways.
        The Senate-passed tax increase package would raise the statewide gross receipts tax rate — now 5 percent — by one-eighth percentage point, yielding almost $60 million a year.
        The bill also would reimpose part of the gross receipts tax, or sales tax, on food. The rate would vary, depending on the local gross receipts tax rate of the city or county in which the food was bought, but average about 2 percent. The change would bring in an estimated $68 million.
        Another $66 million would be gained from eliminating the deductions that some New Mexicans can now take on their state tax returns for the state and local taxes they've paid. That would increase their taxable income.
        And the state would get $11.6 million from a newly imposed compensating tax on out-of-state companies that sell products to New Mexico businesses but have no physical presence in the state.
        Offsetting part of that new revenue is a provision in the same bill that would beef up a tax rebate available to low-income New Mexicans, estimated to cost about $5 million annually.
        The package won the support of progressive Democrats who said the regressive nature of the food tax and gross receipts tax hikes were offset by the other provisions.
        The cigarette tax increase — which would raise the state tax on cigarettes from 91 cents a pack to $1.66 a pack — was approved in the House Taxation and Revenue Committee by a 10-6 vote, a day after the panel rejected a similar measure.
        Two Democrats on the committee changed their votes from Monday after language was inserted in the bill that would funnel one-third of the new cigarette tax revenue to public schools statewide.
        "What a difference a day makes," House Speaker Ben Lujan, D-Santa Fe, told the Journal after the vote was completed.
        The cigarette tax is seen as a key part of the tax hike package being counted on by Lujan and other legislative leaders to help pay for a $5.6 billion spending plan for the budget year that begins July 1.
        New Mexico faces a projected budget deficit for the coming year of between $500 million and $600 million.
        The cigarette tax would generate an estimated $33 million next year, though some lawmakers questioned whether that much money would really be raised.
        "I think we're setting ourselves up for disaster," said House Minority Whip Keith Gardner, R-Roswell.
        The earmarking of one-third of the new cigarette tax revenue — or $11 million of the $33 million — appeared to make the bill more palatable to a number of House Democrats, some of whom had criticized proposed cuts to education in the tentative budget deal crafted last week by House and Senate leaders.

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