Governor’s tax proposal is unfair to families
New Mexico has one of the most unfair tax systems in our nation. We need to fix it, but we have to do it the right way. Gov. Susana Martinez is calling the Legislature back to the Roundhouse on Wednesday to balance the budget and is adding “comprehensive” tax reform to the agenda. Her proposal is ambitious and complex, needing more time and careful deliberation than a special session can provide. It’s also missing a crucial component — fairness.
New Mexico’s tax system is shockingly regressive — putting the highest tax burdens on the lowest-income families. A family making $16,000 a year spends nearly 11 percent of income on taxes, while someone making more than $350,000 a year spends less than 5 percent of income on taxes, according to the Institute Taxation and Economic Policy, a nonpartisan institute that has rigorously studied taxation in each state. The reason is because moderate- to low-income families spend more of their income on purchasing goods that have gross receipts taxes, whereas a higherincome family spends less of its income on this while packing a large part away into savings, investments or real estate.
The governor’s proposal, however, doesn’t address this fundamental inequity. It reforms the gross receipts tax system by ending numerous tax credits and exemptions for various industries. While it purports to reduce the overall gross receipts tax rate, it could actually raise taxes on middle-class and low-income families. Not enough is known about the actual impact. What is known is that dozens of tax loopholes are targeted in the bill, except for one of the biggest ones — tax breaks to the wealthiest households.
In 2003, New Mexico reduced the number of tax brackets and decreased our top tax rate from 8.2 percent to 4.9 percent. It flattened the tax rate across income groups but made our tax system much more regressive. The argument at the time was that these tax breaks would create jobs and spur economic development. They haven’t.
Instead, we now have an unbalanced system that is hurting all of our families — no matter their income level. We are losing the necessary revenue to invest in the community infrastructure that we all benefit from such as our schools, health care, roads and law enforcement. Nobody wins when we have unsafe communities, underpaid teachers and overcrowded classrooms, or families unable to access high-quality child care and parenting resources. Those income tax cuts lost hundreds of millions in revenue each year, according to the Fiscal Impact Report from House Bill 167 in 2003 — the bill that initiated the tax cuts.
The proposals to fix the income tax inequity are reasonable and must be part of tax reform. For example, one bill introduced during the 2017 session would have taxed “1 percent on the 1 percent.” It would have created a new bracket for the top 1 percent of wealthiest families and increased their rate from 4.9 percent to just 5.9 percent. This would apply to married couples filing separate returns and making over at least $230,000 per year. Individuals would have had to make more than $306,000 and married couples filing jointly over $460,000 before the new brackets applied.
Our policymakers should prioritize what’s fair for our families. We must evaluate all areas of the tax system to ensure it reflects our values. Fair contributions from every New Mexican to help our larger community shouldn’t be too much to ask.