Senate committee advances high-income tax hike

Wealthier New Mexicans, as well as corporations earning more than $500,000 annually, would pay a higher tax rate under legislation the Senate Tax, Business and Transportation Committee passed on a party-line 7-4 vote Saturday.

The proposal to raise the personal and corporate income tax rate for higher earners is part of an effort to increase and expand two tax break programs that are designed to put more money into the pockets of lower income residents. In other words, one would help pay for the other.

“It’s a policy choice, putting some more progressivity back into the personal income tax and the corporate income tax to help working families,” said Senate Majority Leader Peter Wirth, D-Santa Fe, who proposed amendments to House Bill 291 that the committee adopted.

Republican members on the committee raised objections to both tax rate increases. They said raising the personal income tax rate would hurt hardworking New Mexicans and have a ripple effect.

“When you raise the tax on folks and there’s less money in their pocket, there is less money to go to charitable causes, less money to support Little League baseball and those sorts of things,” said Sen. Ron Griggs, R-Alamogordo. “Many of these people that we’re fixing to increase taxes on are small-business owners. … This is a direct hit on a lot of small businesses.”

Under the proposal, the tax rate for individuals with taxable income between $100,000 and $210,000 would be 5.5 percent; 6.2 percent for individuals with taxable income between $280,000 and $415,000; and 6.5 percent for taxable income over $415,000.

In a statement issued after the vote, three sponsors, all Democrats, lauded the legislation as a measure that creates fairness in New Mexico’s tax code.

“Families living on $25,000 should not be paying the same tax rate as those earning $250,000, but that’s what’s happening in New Mexico’s current system,” Rep. Christine Chandler, D-Los Alamos, said. “By investing in our financially struggling families and allowing them to keep more of their hard-earned dollars, we are enabling them to spend more in their local economies and neighborhood small businesses.”

In addition to creating three new tax brackets, from five to eight, the bill increases the Working Families Tax Credit from 17 percent to 25 percent of the federal earned income tax credit and expands eligibility by including workers between 18 and 24 years old without children, as well as workers without a Social Security card, such as undocumented immigrants with a so-called Individual Taxpayer Identification Number.

The expansion from 17 percent to 25 percent would go into effect in 2023.

The bill also would expand the Low Income Comprehensive Tax Rebate, allowing workers who earn $37,000 or less a year to qualify.

Republicans said the proposed corporate income tax rate increase, which wasn’t part of the original bill, could deter big business from wanting to stay or move to New Mexico.

“We are taking a small segment of corporate income taxpayers, and we are increasing their taxes over the next five years 60 percent, so keep that in mind as you vote on this bill,” said Sen. Gay Kernan, R-Hobbs.

The state Economic Development Department reported that increasing the top bracket in the corporate income tax rate is going to put New Mexico in an “unfavorable light” compared with other states, economist Kelly O’Donnell told the committee.

“The [department] has asserted quite firmly that they believe that this will have a chilling effect,” she said.

Wirth downplayed the department’s concern, saying “that’s their job.”

“When [businesses] look at the list of issues that actually impact their decisions, the tax rates are pretty low down the list,” he said.

Sen. Martin Hickey, D-Albuquerque, agreed, calling the higher corporate income tax rate “decimal dust” to the chief financial officers of big businesses.

“What they’re going to worry about is crime, education and now, health care, and if we do not generate revenue for the state to address those issues, they aren’t going to come,” he said.

Wirth said the proposed corporate tax rate increase applies to so-called C corporations.

“These are the big boxes, those that generally have done pretty darn well during COVID,” he said, adding that the same corporations received a 40 percent tax cut in 2017.

“This takes it from the current rates, which are 5.9 percent over $500,000, to 7.6 percent over $500,000,” he said. The increase would be gradual and hit 7.6 percent in the fifth year.

The amended bill removes a proposed property tax increase on second homes, an idea that Wirth said needs to be considered as a standalone issue.

“I know it’s being argued this is a plus for housing, but for all those residential apartment complexes that have been built for a while, this would mean a pretty significant tax increase, property tax increase, if that increase gets passed along to the tenants,” Wirth said. “We’re in effect increasing rents for those who are in the lower-level apartment housing situation.”

Wirth had previously proposed a one-eighth reduction in the gross receipts tax and a cigarette tax increase but pulled those items from consideration Saturday. But he said both of those issues are “still very much in the mix.”

Wirth said Sen. George Muñoz, D-Gallup, chairman of the Senate Finance Committee, is working on a plan that may involve both taxes.

Muñoz “has indicated that he is going to look for a way to do the gross receipts tax reduction, and some of that may be the cigarette tax to pay for some portion of it,” he said.

The bill is scheduled to be considered next by the Senate Finance Committee.