Lawmakers may clash over tax reform bill

Governor’s legislation won’t get hearing; budget is top priority, House speaker says

Despite last-minute efforts to revamp a tax reform bill favored by Gov. Susana Martinez, the legislation will not get a hearing in the special session of the New Mexico Legislature scheduled to begin Wednesday, House Speaker Brian Egolf said Tuesday.

Democrats say they want to focus on the state budget as lawmakers meet in Santa Fe to restore funding for higher education and the legislative branch that Martinez stripped from a spending plan passed by the House and Senate earlier this year.

While the outright refusal to take up proposals for sweeping changes to New Mexico’s tax code this week seems to set up another showdown between the Republican governor and Democrats who control the Legislature, leading lawmakers still expect it will be a quick session.

Egolf argued it would not be wise to try to rush consideration of a lengthy piece of tax reform legislation, which Democrats said still had not been printed.

“It’s not fair to the public, to the businesses that would be impacted, to legislators, or to the media to try to pass a 400-page bill that we haven’t even seen yet,” Egolf told The New Mexican.

Without tax reform, however, it could be harder for lawmakers and the governor to reach an agreement on a budget.

Martinez line-item vetoed large chunks of the $6.1 billion spending plan that legislators passed in March for the budget year that begins in July. The vetoes came during a standoff over Democratic proposals for tax increases as a means of balancing the budget and boosting the state’s dwindling reserves, with the specter of further cuts in government services and a downgrade in the state’s bond rating looming after declines in tax revenue during the preceding months.

Martinez has repeatedly rejected the idea of raising taxes but has signaled she would be open to raising some taxes as part of a broader reform plan that eliminates loopholes, lowers overall tax rates and creates a system that is more accommodating to businesses.

A spokesman for the governor cast doubt Tuesday on the likelihood of a compromise if tax reform legislation is not passed.

“If the Speaker doesn’t want to consider tax reform, then he shouldn’t waste time passing tax hikes, because they will all be vetoed,” Mike Lonergan said in an email. “Unfortunately, Speaker Egolf is already demonstrating for the state his refusal to work together towards any kind of compromise and instead is once again trying to jam the same old tax hikes through the legislature.”

House Republicans, meanwhile, still planned Tuesday night to push for tax reform.

Rep. Jason Harper, R-Rio Rancho, who has been working on the overhaul, said he was surprised by Egolf ’s statements.

“When we spoke I asked him to review the proposal with an open mind before making a final judgment, and we were going to meet later today or tomorrow,” Harper said Tuesday. “He said he’d keep an open mind, so I’m a little confused.”

Harper said Tuesday the bill was still being finalized. “Putting in technical corrections now,” he said. It is not expected to be printed until Thursday.

The proposal would end many gross receipts tax exemptions favored by special interest groups, placing it on precarious political ground. And some lawmakers have raised concerns that major changes to the tax code could lead to the state collecting less tax revenue, undermining New Mexico’s already dwindling general fund and potentially throwing the government’s budget out of balance yet again.

Harper had ditched one of the most high-profile parts of his proposal: reinstating the gross receipts tax on groceries. Labeled derisively by the Catholic Church as the “tortilla tax,” it stood little chance of passing.

But House Republicans had said they would seek to end plenty of other tax exemptions in order to raise more money for the state and lower the overall gross receipts tax rate. Harper said the changes in his proposal would cut the average gross receipts tax rate from 7 percent to about 6 percent.

Harper confirmed that his bill would raise the tax on vehicle sales to 6 percent from 3 percent. Some of the new revenue would be used to help pay for roads while another part would flow into the state’s general fund.

The bill would also eliminate the tax exemption for services provided by health care providers, except for treatment of Medicare recipients. It also would increase the tax on health insurance premiums to 5 percent from 4 percent.

If the legislation somehow did pass, it would go into effect in February 2018. There would be a gross receipts tax rate adjustment in January 2019, Harper said. That would allow time to gauge the affect on tax revenue and stave off a sudden drop in tax collections.

The special session is already overshadowed by the state’s budget crisis, however.

Democrats say the priority should be restoring funding for higher education. But even if that funding is restored, the state budget would still leave New Mexico government with a shortfall.

The speaker said he supports the idea of conducting a study on the tax system this summer and considering changes either at a future special session or next year’s regular session. He said there will be funds for such a study in an appropriations bill to be considered during this week’s special session. Republican state Sen. Bill Sharer, R-Farmington, has supported a similar idea.

This would give lawmakers more time to read and analyze a big bill, he said, and give the public more time to comment.

“These things shouldn’t be done in secret,” he said. “There will be hundreds of thousands of people affected by this.”

The state League of Women Voters agrees. In a statement released Tuesday, the League said it agrees with Martinez about the need to reform the tax system. But, the statement said, “comprehensive reform requires careful study in order to assure that it accomplishes the intended goals. New Mexico leaders made the mistake of rushing through legislation in the recent past and it has been a factor in our present budget crisis. In the closing hours of the 2013 session Republican Governor Martinez and Democratic House Speaker Kenny Martinez made a deal behind closed doors. That deal included a reduction in corporate taxes and a number of other tax giveaways to special interests, all of which have contributed to the present budget shortfall. The state should not repeat that mistake.”

Rep. Bill McCamley, D-Las Cruces, who worked with Harper during the session on tax reform, said Tuesday that he is concerned about how the new proposal’s plan to increase taxes on doctors would affect rural health care.

Even longtime advocates for tax reform say they would be surprised if the Legislature passes a major overhaul in the coming days.

“If it passes, I would be relatively shocked,” said Paul Gessing, president of the conservative Rio Grande Foundation.

Gessing nonetheless said he views the recent debate as a victory if it leads to changes in the near future.

“I do sympathize with legislators who say they may not have the time and ability to come up with good reform during special session,” he said, adding he hopes lawmakers will take up tax reform during a special session later this year or during next year’s regular session.

Lonergan, however, said Martinez remains committed to comprehensive tax reform during the upcoming special session.

“The question is, do Democrat lawmakers have the courage to take on this serious issue,” he said. “Or will they try to take the easy way out and raise taxes, as they did earlier this year when they passed a $350 million hike that would have raised the price of gas and other expenses.”