February 14, 2003
Gov. Signs Tax-Cut Package
By Barry Massey
The Associated Press
SANTA FE Gov. Bill Richardson signed a measure into law Friday to cut income taxes over five years and lower taxes on capital gains.
The legislation was a major political victory for Richardson, who had campaigned on lowering taxes and succeeded in pushing the Legislature to approve his package during the third week of the 60-day session.
The law will lower the top marginal rate of the personal income tax from 8.2 percent to 5 percent over five years. It also will phase-in a 50 percent deduction on capital gains. When fully implemented, the tax cuts will cost the state nearly $360 million in lost revenue.
The tax package will deliver the largest reductions to upper-income New Mexicans. The governor contends that lowering the top income tax rate will make New Mexico more competitive with other states and help recruit high-wage businesses.
"Our Valentine's gift to working families in New Mexico is this historic tax-reduction package that puts money in New Mexicans' pockets and declares our eagerness to create jobs and improve and grow our economy," Richardson said at a news conference in the Capitol rotunda.
Flanked by Democratic and Republican lawmakers, Richardson signed the bill just a few hours after the House and Senate gave final approval to the package on voice votes. After signing the legislation, he gave legislative leaders the pens used during the ceremony.
"Make no mistake, the point of cutting the personal income tax and the capital gains tax is to send an unmistakable message to business leaders, here in this state and across the nation, that . . . New Mexico is open for business," said Richardson.
House Speaker Ben Lujan, D-Santa Fe, said all sides the governor and lawmakers made concessions to reach an agreement on the tax cut.
"This tax cut represents a compromise that will hopefully be in the best interests of the state of New Mexico," said Lujan. "We are placing our trust in Governor Bill Richardson's economic development initiatives for this state, and we trust that Governor Richardson will be fast out of the gate on this one."
The compromise eliminated a circuit-breaker provision opposed by Richardson that House Democrats advocated. That provision could have delayed parts of the proposed personal income tax cuts if the state's finances weakened.
The tax measure provides for:
Stretching out implementation of the tax reduction, phasing it in over five years instead of four.
Dropping the top marginal rate, when fully implemented, to 4.9 percent instead of 5 percent as originally proposed. Richardson, when the final version was being negotiated, had urged lawmakers to drop the top rate to 4.5 percent, Lujan said.
The compromise calls for the top marginal rate to drop to 7.7 percent in tax year 2003, 6.8 percent in tax year 2004, 6 percent in tax year 2005, 5.3 percent in 2006 and 4.9 percent starting Jan. 1, 2007.
The fully implemented tax cut will mean an average reduction of nearly $5,458 for a married couple filing a joint return and having more than $100,000 in taxable income.
The reduction averages $89 for a married couple filing jointly with income between $24,001 and $40,000.
For a single filer with more than $65,000 in taxable income, the fully implemented tax reduction will average $4,102. It will be nearly $54 for a single filer with income between $16,001 and $26,000.
The top rate, once it drops to 6 percent, will apply to taxable income of more than $24,000 for a married couple filing a joint return and of more than $16,000 for a single tax filer. Those same brackets will remain in place when the rate falls to 5.3 percent and 4.9 percent.
By phasing in the tax cuts over a longer time, the yearly revenue loss tends to be more level and is lowered somewhat in the final two years of the implementation period.
That helped ease concerns of House Democrats who had insisted on the circuit-breaker as a possible safety valve to protect against a budget shortfall if state revenues dipped unexpectedly when the last and most expensive phases of the tax cut were taking effect. Richardson and the Senate had opposed the circuit-breaker.
Dropping the top income tax rate to 4.9 percent would give New Mexico a lower top marginal rate than Arizona, which is at 5.04 percent. Colorado's top rate is 4.63 percent; Oklahoma, 7 percent; Utah, 5.65 percent; and California, 9.3 percent. Texas and Nevada have no personal income tax.
A significant reduction in the income tax had been a goal of former Republican Gov. Gary Johnson, and Richardson said he called Johnson to tell him of legislative approval of the five-year tax package.
"Today, after eight years of gridlock, after eight years of partisanship and disagreements, I am proud to say that the governor and that the Legislature on a bipartisan basis are working together for the betterment of the state," said Richardson.