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New Mexico House approves tax hike despite GOP concerns

March 2, 2019

SANTA FE, N.M. (AP) — The New Mexico House of Representatives voted late Friday in favor of changes to the state tax code that would increase some personal income tax rates and impose new taxes on e-cigarettes, nonprofit hospitals and online sales.

The Democrat-sponsored bill, approved on a 40-25 vote after hours of debate, was designed to trim the state government’s dependence on income from the oil sector and shift some of the burden to taxpayers.

Democratic Rep. Javier Martinez of Albuquerque, a lead sponsor, said the promised benefits of prior income tax cuts in 2003 and 2013 never materialized and that reforms are needed to broaden the tax base and underwrite improvements to public education and roads. He described it as an investment in children and in government.

“This is our attempt to reform an economy that has far too long been dependent on a single source of income,” he said.

Republican lawmakers said it doesn’t make sense to raise taxes when the state has such a significant budget surplus. They argued that targeted and sustainable investments can be made in public education without demanding more from New Mexico taxpayers and making the state less attractive to businesses.

Economists expect state income to outpace general fund spending obligations by $1.1 billion for the fiscal year starting on July 1, as oil production grows at a rapid pace. They also warn that the financial windfall could quickly evaporate because of volatility in world energy markets.

Republican Rep. Jason Harper of Rio Rancho said at roughly $580 million, the changes would represent the largest tax increase in state history and would affect all New Mexico families, not just the affluent.

“In my mind the solution is not to squeeze more blood out of a turnip, it is to fertilize our field,” he said, “and we do that by doing real tax reform and addressing crime and these things that make New Mexico more fertile ground for families to come and grow.”

The tax proposal would create several new personal income tax brackets, while raising the maximum rate from 4.9 percent to as much as 6.5 percent for individuals who earn $200,000 a year or more or joint filers earning $300,000. Taxpayers earning significantly less would see smaller increases, and the tax credit for families with children would double to offset tax increases caused by the 2017 federal tax overhaul.

The legislation also would pave the way for state and local governments to levy taxes on sales by online retailers, increase taxes on tobacco, initiate taxes on e-cigarettes, and require nonprofit hospitals to pay the same taxes on sales and services that other hospitals pay.

Lawmakers are facing pressure from a district court judge to increase resources for public education — the outcome of a lawsuit by parents and school districts who say public education has been starved of resources to the detriment of students from low-income and minority families.

In response, Democratic Gov. Michelle Lujan Grisham has proposed a half-billion dollar increase in annual spending on public schools. Top Republican lawmakers say the increase is too much and too quickly, for a state where government income fluctuates wildly in concert with the oil industry.

Martinez called the current tax system “inherently inequitable,” and said tax cuts made by former Democratic Gov. Bill Richardson in 2003 did not live up to expectations for creating jobs and economic growth. Currently, the top personal income tax rate applies to individuals earning $16,000 a year or more.

House Speaker Brian Egolf, D-Santa Fe, said the decision years ago to enact what amounted to a flat income tax eroded New Mexico’s tax base and cost a generation of New Mexicans the revenue needed to fund the schools, health care systems and roads that they deserved.

“We need to rebuild our state,” Egolf said.

House Minority Whip Rod Montoya of Farmington called the proposal “a massive investment in government by the way of confiscating the money from the residents here in New Mexico.”

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Montoya Bryan reported from Albuquerque.

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