Committee scotches tax reform bill
A legislative committee on Thursday rejected a bill for a sweeping overhaul of New Mexico’s gross receipts tax, tabling a proposal that Republican Gov. Susana Martinez had touted as a priority and leaving intact a long list of exemptions.
The House Labor and Economic Development Committee voted 6-5 along party lines to block the proposal. Democrats said it would be unwise to rush through a complex tax bill during a special legislative session dedicated to financial solvency and funding the state’s higher education system.
Sponsored by Rep. Jason Harper, R-Rio Rancho, the 430-page bill would have ended most credits and deductions in the state’s gross receipts tax. Harper said the bill would have allowed the state to lower its overall gross receipts tax rate and simplify the tax system.
“If you don’t have one of these deductions, you’re paying more than your fair share of tax,” he told the committee.
Harper said the bill would have lowered the state gross receipts tax from approximately 4.2 percent to 3.6 percent next year while raising certain taxes, such as those on health care and car sales.
But critics countered it could cost the state too much in revenue at a time when New Mexico government is already strapped for cash. They also said Harper’s bill was flawed, calling it a piecemeal proposal that would protect tax breaks for well-to-do New Mexicans.
House Speaker Brian Egolf, D-Santa Fe, had pronounced Harper’s bill dead
even before the special session began Wednesday. Egolf said such a long and technical bill couldn’t be carefully considered during the scramble of a special session. Egolf nonetheless gave Harper a couple of hours to present his proposal to the committee.
An unlikely mix of lobbyists lined up to speak against it.
Representatives of labor unions and liberal advocacy groups said the bill would shift a bigger share of the tax burden onto the poor.
“We don’t want to have a more regressive tax structure,” said Carter Bundy of the American Federation of State, County and Municipal Employees.
A representative of the health insurance industry said the bill would raise the tax on premiums to the highest in the country.
And officials from charities, including the American Cancer Society, raised concerns about ending a tax exemption for nonprofit groups.
Harper’s bill would have left some exemptions in place, undermining the idea of simplifying the tax code to keep government out of the business of picking beneficiaries of tax breaks.
“The bill would offer both benefits and drawbacks for economic development in the state,” the Legislative Finance Committee staff wrote in its analysis of the bill. “Some companies are attracted to simple tax code systems and lower overall rates. However, some business incentives are repealed by the bill either immediately or in the future, so some companies that might have located in New Mexico and been able to largely avoid paying GRT would now be subject to the tax, albeit at a lower rate.”
The analysis was only preliminary, cautioning that the bill’s effects were uncertain.
The governor has said she will not approve other measures to raise money through taxes and fees, such as those approved Wednesday by the Legislature, without comprehensive tax reform. But without those increases in taxes, the state could end up with little cash during the fiscal year that begins in July.
Democrats in the Legislature also echoed State Auditor Tim Keller, who issued a report early Thursday pointing out that the gross receipts tax accounts for only a quarter of the state’s tax breaks. The largest share of revenue that the state does not collect as a result of tax breaks is in extraction industries — oil, gas and mining.
“Choosing to increase the burden on sick people, rather than out-of-state corporations, wealthy investors, and oil and coal companies — all who get tax carve-outs — isn’t right,” said Rep. Bill McCamley, D-Las Cruces, who chairs the Labor and Economic Development Committee.
Even some Republicans said Harper’s bill would not go far enough in simplifying the tax code and might not raise enough money to still pay the state’s bills.
“I think Representative Harper is clearly on the right path in trying to find the loopholes and close things,” said Sen. Bill Sharer, R-Farmington. “But [his bill] is not simple, and I don’t think it attracts anybody.”
Asked if it bothered him that Harper’s bill had died, Sharer said, “Not today.” He said he didn’t believe it was reasonable to tackle a 430-page bill during a short special session.
Sharer said he supports a thorough study of tax reform, something he said had not occurred since the 1960s. The Legislature in the special session approved $400,000 for just such a study.
Harper filed the bill Wednesday and leading lawmakers said they had not seen it previously. That was one argument Democrats made in opposing the measure.
But Republicans said the House had approved a similar, bipartisan bill without opposition earlier this year and that most of the 430 pages were simple changes in the tax code’s wording.
Legislative staffers challenged that claim. They wrote in a financial analysis that the bill in some ways is significantly different from Harper’s last proposal.
Fans and critics of the bill praised Harper for taking on the issue. And the debate has spurred calls for further study of tax reform.
But with the governor pushing the bill and Democrats fighting her on various fronts, the bill — which had been long in the making — seemed bound to get bogged down in the politics of the special session.
“It is very disappointing to me that this has turned into a partisan fight,” Harper said.
Contact Andrew Oxford at 505-986-3093 or aoxford@ sfnewmexican.com. Follow him on Twitter @andrewboxford.