The time is ripe for NM to finally reform its tax code

It’s been a bumper crop of sorts in recent years for New Mexico as far as tax revenue goes.

State coffers have swelled to epic proportions — revenues are expected to reach $7.5 billion for fiscal 2020 — thanks in large part to the ongoing oil and gas boom in the Permian Basin that spreads from west Texas into southeast New Mexico.

Add on top of that a slate of new taxes that went into effect Monday, levying extra charges on items including cars, cigarettes and online goods from national retailers.

Needless to say, we’re in the midst of consecutive feast years.

So can we, please, finally, talk about meaningful tax reform?

For too many years, state lawmakers have been nibbling around the edges of fixing New Mexico’s sprawling, regressive gross receipts tax on goods and services. Much of that tentativeness was due to a bust oil and gas economy that would have amplified any negative tax reform consequence — intended or otherwise. But this is not a bust economy. Even so, earlier this year New Mexico House Democrats took one step forward and several steps back when they pushed through the aforementioned bevy of tax hikes. While it’s hard to understand why lawmakers felt the need to raise taxes while anticipating a nine-figure surplus, their House Bill 6 did take the important steps of allowing the state and local government agencies to collect taxes on online sales, as well as requiring nonprofit hospitals to pay the same GRT rate as for-profit or government hospitals.

But New Mexico — where 40% of the state’s population is on Medicaid and a fourth is on food stamps — needs more meaningful tax reforms to alleviate residents’ burden in the midst of all that new revenue. In other words, it’s not raining, so it’s time to fix the roof.

Because when you depend on a boom-bust industry, you know bust is always looming down the road.

In January, lawmakers will head back to the Roundhouse for a condensed, budget-oriented legislative session. Hopefully, legislators will approach the 2020 session with well-thought-out visions of how tax reform should look.

Rep. Jason Harper, R-Rio Rancho, has been a voice for common-sense reforms in the past, though he has gained little traction for his efforts. Among his good ideas: eliminating many of the loopholes and deductions that make our tax code look like Swiss cheese while pyramiding costs on businesses and picking winners and losers rather than letting the market prevail. Harper would broaden the tax base and then lower the tax rate to get the reforms close to revenue-neutral.

He would also address the abomination served up in the wake of the 2005 repeal of the tax on food — many municipalities took advantage of the chance to raise their gross receipts taxes to make up for the lost revenue and are raking in as much as three times as much money, all on the backs of New Mexico taxpayers.

All of these proposals have been vetted, have legislative fiscal impact reports, even a $400,000 study that says the loopholes have to go for the tax base to ever have a chance of keeping up with state revenue needs.

There’s a lot to consider here, and yes, every potential fix to our state’s patchwork of exemptions and pyramid-style tax levels will have unintended consequences. That’s why lawmakers need to get busy now — like they promised in June 2018 when they got that study and an accompanying computer model to evaluate the financial impact of any proposed changes. It is past time for them to start parsing possible tax-reform models so they can hit the ground running in January 2020, ready to negotiate and compromise.

And this is where Gov. Michelle Lujan Grisham’s leadership could shine. She has already demonstrated her willingness and ability to work with legislators from both sides of the aisle. This is an opportunity for her to help shape true tax reform that would truly transform this state.

Because, in the end, every bad tax policy comes back to the people in every corner of New Mexico, and each and every one of them deserves a better system.

If not now, when?