Tax increases now? C’mon, Legislature

If ever there were a time for tax increases to be off the table at the Roundhouse, it would be now. Why?

◆ The state is awash in revenue, basking in a record

$3.6 billion budget surplus.

◆ New Mexico is in the midst of an economy-wide shortage of skilled professionals, especially in health care, where doctors and other providers are leaving in droves.

◆ Our state lost population last year.

◆ And small businesses, the backbone of our local economies, have had to weather a pandemic and economic shutdowns, record inflation, supply chain disruptions, the imposition of a 60% higher minimum wage and a new paid sick leave mandate on employers.

In fact, given these circumstances and available revenue, now is the time for long-awaited tax reform and significant tax relief — for all New Mexico residents and small businesses. What an opportunity we have to attract new workforce talent, businesses and jobs! Instead, legislative leaders are advancing a package of tax changes that we believe would push them further away.

The tax package would create new, higher personal income tax rates, driving New Mexico into the top 15 states for tax rates nationally and raising taxes on families, small businesses and the kinds of skilled professionals already in short supply.

It would also gut our current capital gains tax deduction, raising taxes on investment income and discouraging savings. Leading economists have called taxing capital gains “about the most inefficient source of tax revenue in the economy.” The last thing we need is capital flight out of New Mexico. We need people to put their capital at risk in New Mexico in order to preserve and develop jobs here.

And separately, lawmakers are proposing a brand new tax on most employers and employees to pay for a massive new government program requiring businesses to provide up to three months of annual paid family and medical leave to every employee — especially disruptive and costly for small employers. Ninety percent of businesses in our state have fewer than 20 employees and would struggle mightily under this burden.

Meanwhile, lawmakers left out of the tax package a governor-backed proposal to significantly reduce tax pyramiding — the layering of gross receipts taxes that small businesses, in particular, have to pay for things like professional services. Pyramiding raises consumer prices. And it disadvantages small businesses and New Mexico-based companies in favor of large corporations. Of all things to shuck aside!

Sadly, lawmakers caved to pressure from the Municipal League, which expressed concern that helping small businesses in cities and towns would mean less revenue to local governments. Even when negotiators solved that objection, identifying a way to keep local government revenues whole (and then some), the Municipal League shot down the compromise, shortsightedly denying cities additional revenue and small businesses critical tax relief.

To be fair, the tax package would lower the gross receipts tax rate by 0.625 percentage points over the next two years and preserve the income tax exemption for much of a person’s military retirement pay. These are good things. But on balance, the tax package reflects a lack of concern for those who run small businesses and any company, university, national laboratory or other organization that has to recruit talent to New Mexico.

The fact is that a cancer doctor or psychiatrist can choose to practice anywhere. An engineer or scientist can work at any national laboratory or private facility. A top-flight professor can go to any university. A large company can decide how many — or how few — jobs to put into New Mexico. And an entrepreneur can launch an idea and a business anywhere in the U.S. We need these professionals to stay or come to New Mexico to create more opportunities for all new Mexicans; the proposed tax package would do the opposite.

Let’s hang a welcome! sign, not add more barriers — it’s the only way to a stronger economic future.