February 3, 2003
Senate Approves Governor's Income Tax Cuts
By Deborah Baker
The Associated Press
SANTA FE The Senate unanimously approved a four-year tax-cutting package on Monday, responding to Gov. Bill Richardson's appeal for quick action on what was one of his top campaign pledges.
The plan would reduce the top rate of New Mexico's personal income tax from 8.2 percent to 5 percent over four years and slash the capital gains tax with a 50 percent deduction over the same period.
When fully implemented, the governor's proposal would cost $325 million annually a figure that troubled several senators.
Richardson said the tax cuts would jump-start economic development, sending the message New Mexico has become more business-friendly. The resulting revenue growth would eventually offset the tax cuts, he said.
"This is a bipartisan initiative to stimulate the economy," said Sen. Carlos Cisneros, D-Questa, a sponsor of the measure.
The Senate voted 39-0 to approve the bill, which goes to the House for consideration. Richardson hopes the bill can win final approval sending it to the governor to be signed into law by the end of this week.
That would be unusually fast action on major legislation especially so early in the session and House Speaker Ben Lujan, D-Santa Fe, indicated that might be optimistic.
Lujan said the House Taxation and Revenue Committee generally doesn't approve tax bills until it has a better handle on proposed state spending for the next year.
And the House is likely to want to add some sort of circuit-breaker provision that would halt the tax cuts if the state's financial outlook worsened, he said.
"We want to be sure we have tax relief, but not get in the position other states are in," Lujan said in an interview Sunday.
Richardson said he prefers the bill in the "clean" form endorsed by the Senate.
"I have serious reservations about any provision that would hijack the tax cut in the out years," he said Sunday. "I'm willing to talk about some safeguards, but not an extreme measure."
And the governor said waiting to act on the bill was "the old way of doing things." He said he wants rapid action on it.
"If we just bog ourselves down at the end of the session with trade-offs in every direction, we're not going to get anything done," he said.
Concern about the long-term effects of the tax cuts was voiced by several senators.
Sen. John Arthur Smith, D-Deming, supported the measure but warned that New Mexico could face a budget shortfall of more than $200 million in fiscal 2007 if the economy doesn't grow in response to the tax cut.
"I think with a tax cut, under a normal fiscal environment, I would be much more optimistic. But I am extremely apprehensive right now with what we're doing," said Smith. "We're going to be supportive of this, but this body may be back in having to adjust either reducing spending or adjusting our revenues in one form or fashion."
Under the plan, the highest personal income tax rate would dip from 8.2 percent to 7.7 percent for the 2003 tax year; 7 percent for 2004; 6 percent for 2005; and 5 percent for 2006 and thereafter.
That would cost $17 million in the first year, affecting 88,000 tax returns and reducing taxes an average of $200 per return, the committee was told.
The governor says more aggressive tax collections can cover the initial cost of the tax cuts.