Tax rates do matter when it comes to attracting jobs

It would be easy to take the simplistic view that lowering New Mexico’s top corporate income rate from 7.6 percent to 5.9 percent over a five-year period as part of a 2013 business tax overhaul is costing New Mexico a lot of money. It would also be wrong. Corporate tax collections have dipped from $281 million in fiscal 2012 to a projected $118 million in fiscal 2017. Critics of the overhaul, which also included getting rid of the so-called single sales factor, point to the numbers and say if the goal was to encourage job growth, it has been a failure.

Indeed, New Mexico State University economist Jim Peach says there “is very little evidence that lowering tax rates promotes economic growth. You’re seeing that here.” Peach argues that a well-trained work force is more important.

State officials counter that the overhaul put New Mexico in a more competitive position and cite the economic devastation wrought by the plunge in oil and gas prices. Clinton Turner, chief economist for the Department of Finance and Administration, points out that job growth in private business is up 9,000 jobs over last year.

Moving outside academia for a moment, it’s worth noting that New Mexico’s old corporate rate would have us higher than Arizona, 4.9; Utah, 5; Colorado, 4.63; and even New York at 6.5. Texas and several other states have no corporate income tax.

Meanwhile, states like New York are aggressively pushing other tax breaks. New York offers companies that agree to start or relocate certain kinds of businesses on or near eligible university or college campuses “the opportunity to operate tax-free for 10 years.” The state has 10 regions offering tax-free zones.

Perhaps New York hasn’t gotten the message that tax rates don’t promote economic growth.

Gary Tonjes, chief executive of Albuquerque Economic Development, deals with companies looking to expand or relocate.

He says that prior to the 2013 changes, New Mexico’s policy toward expanding employers was “atrocious” and New Mexico was eliminated from consideration for many projects because of its tax structure. A study by Ernst and Young rated our attractiveness to manufacturers as worst in the nation.

Peach is correct that companies consider many factors, including work force. They also look at public schools, crime, transportation infrastructure, etc.

Tonjes says that for most companies, deciding on a new location is not a process of selection — rather it is one of elimination. And taxes, he says, “absolutely matter.” Lawmakers should keep that in mind when they revisit this issue.