Sweeping tax overhaul clears New Mexico House
SANTA FE, N.M. (AP) — It’s billed by Democrats as New Mexico’s best chance to save thousands of children from a life of poverty by investing more money than ever before in public education and other government programs.
For Republicans, it’s a cover for taking money from the pockets of hard-working New Mexicans and placing unsustainable demands on the state’s coffers.
A proposal to overhaul key portions of New Mexico’s tax code prompted hours of debate late Friday as lawmakers on both sides of the aisle shared their visions for how best to jump start a state that has been stricken for decades by poverty, poor educational outcomes and slow economic growth.
“We need to rebuild our state,” said the Democratic House Speaker Brian Egolf.
He pointed to a decision by his legislative predecessors to enact what amounted to a flat income tax that eroded the state’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.
He said the proposed reforms represent the first step to turning things around.
The Democrat-sponsored measure passed on a 40-25 vote and now heads to the Senate with about two weeks left in the session.
The bill includes changes to the tax code that would increase some personal income tax rates and impose new taxes on e-cigarettes, nonprofit hospitals and online sales. It’s 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, 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 does not make sense to raise taxes when the state has a significant budget surplus. They argued that targeted and sustainable investments can be made in public education without demanding more from 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 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 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,” he said.
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 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 under a court mandate to increase resources for public education — the outcome of a lawsuit by parents and school districts who say 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 Minority Whip Rod Montoya of Farmington called the proposal “a massive investment in government by the way of confiscating” money from New Mexicans.
Montoya Bryan reported from Albuquerque.