February 13, 2003
Tentative Compromise Reached on Tax Cut Plan
By Barry Massey
The Associated Press
SANTA FE House and Senate negotiators reached a tentative agreement on a compromise five-year tax reduction package that eliminates a circuit-breaker provision opposed by Gov. Bill Richardson.
"I think it is a true compromise," House Speaker Ben Lujan, D-Santa Fe, said Thursday.
Lujan declined to release details of the agreement, but acknowledged that the compromise eliminated a House-backed provision that could have delayed parts of the proposed personal income tax cuts if the state's finances weakened.
It's possible the House and Senate will debate and vote Friday on the tax plan if the agreement remains intact after it's outlined to rank-and-file Democrats and Republicans in the two chambers.
The tentative agreement, according to legislative sources, calls for:
Stretching out the 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.
By phasing in the tax cuts over a longer time, the yearly revenue loss would be evened out and reduced somewhat in the final part of the implementation period.
That helps 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.
Under the four-year tax reduction measures approved previously by the House and Senate, the third year of the tax cut when the rate was to fall to 6 percent would have cost nearly $100 million. The final year, when the rate was to fall to 5 percent, would have cost more than $150 million in lost revenue.
Gov. Bill Richardson said he was open to a five-year phase-in of the tax cut.
"I want to be reasonable about it. I want a tax cut without the circuit-breaker," said Richardson.
The governor says lowering the top income tax rate will make New Mexico more competitive with other states and help in recruiting high-wage businesses.
Dropping the top rate to 4.9 percent would give New Mexico a lower top marginal rate than Arizona, which is at 5.04 percent.
Sen. Carlos Cisneros, D-Questa, a member of the conference committee, declined to provide details of the agreement but said, "I think we have something that everybody can live with."
The governor stressed that he wanted the Legislature to give final approval to a tax cut as soon as possible.
"I just don't want the tax cut to clog the agenda. That's one of my main objectives," said Richardson.
"I want to give New Mexicans a tax cut. I want to send a . . . signal that New Mexico is business friendly."