Tax reform proposal has bad numbers Claimed burden on poor is exaggerated

This is regarding the op-ed column on fair tax reform by Abuko D. Estrada, staff attorney for the N.M. Center on Law and Poverty in last Sunday’s Albuquerque Journal. Hopefully someone else does the financial calculations for the Center on Law and Poverty, as the editorial contains some serious errors.

It states that “a family making $15,000 a year pays nearly 11 percent of their income towards state taxes, including sales, property and income taxes.”

A check of the income tax instructions for New Mexico for 2015 shows that a married family of two has a standard deduction of $12,600 and a personal exemption of $4,000 per person ($8,000 for two persons). This means that when calculating taxes owed, that such a “family” owes no state income taxes until their taxable income exceeds $20,600. If they have two children, they owe no state income taxes until their taxable income exceeds $28,600.

So there is no income tax on a family making $15,000 a year. How much more of an income tax break should low income families be given?

So where does the 11 percent of income in taxes come from? A major part comes from property taxes.

If the family had a home (dwelling and land property) that cost $100,000, it would have a taxable value in Albuquerque of approximately $33,000 and would have a property tax of approximately $1,375. This is about 9.2 percent of $15,000.

But in reality, most families earning $15,000 a year do not own a home. They usually rent, so they pay no property taxes — at least not technically. The landlord/rental property owner pays the property tax.

Of course the landlord includes the cost of the property tax in the rent payment, but he gets the tax deduction, not the renter.

Could this be an area of tax reform? It should also be noted that most families who own a $100,000 home and have a gross income of about $50,000 a year, pay more in property taxes than they do in state income taxes. And in Albuquerque the taxable value of a home has been going up about 3 percent a year or more even during the years when home prices plummeted after the 2008 Great Recession.

Is this another reason for property tax reform?

As regards the capital gains tax break, repealing it would hurt many retirees as well as people who are trying to save for their future security and retirement.

Everyone knows that almost the only place one can earn a reasonable interest rate on savings is in the stock market, i.e., capital gains. Bank savings accounts, money markets, certificates of deposit and even government securities such as U.S savings bonds almost all pay less than 2 percent interest. So the only saving place for most middle-class people to earn a decent return on their savings is the stock market.

Rather than eliminating the capital gains tax break, perhaps it would make more sense to cap it at say $10,000 or $20,000 per year.

If more tax money is needed, it would make more sense to add an additional bracket of a 6 percent tax rate on taxable income over $1,000,000. Hopefully the additional 1.1 percent over the current 4.9 percent would not chase away any millionaires.

Fair tax reform is OK; citing incorrect or misleading figures to validate reform is not.