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New Mexico may limit or scrap tax on Social Security income

January 21, 2022 GMT
New Mexico Gov. Michelle Lujan Grisham, center, talks with local school officials at Sante Fe High School in Santa Fe, N.M., on Tuesday, Jan. 19, 2022. New Mexico is asking National Guard troops and state bureaucrats to voluntarily serve as substitute teachers as preschools and K-12 public schools struggle to keep classrooms open amid surging COVID-19 infections. (AP Photo/Morgan Lee)
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New Mexico Gov. Michelle Lujan Grisham, center, talks with local school officials at Sante Fe High School in Santa Fe, N.M., on Tuesday, Jan. 19, 2022. New Mexico is asking National Guard troops and state bureaucrats to voluntarily serve as substitute teachers as preschools and K-12 public schools struggle to keep classrooms open amid surging COVID-19 infections. (AP Photo/Morgan Lee)
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New Mexico Gov. Michelle Lujan Grisham, center, talks with local school officials at Sante Fe High School in Santa Fe, N.M., on Tuesday, Jan. 19, 2022. New Mexico is asking National Guard troops and state bureaucrats to voluntarily serve as substitute teachers as preschools and K-12 public schools struggle to keep classrooms open amid surging COVID-19 infections. (AP Photo/Morgan Lee)

SANTA FE, N.M. (AP) — Legislators are introducing competing proposals to do away with New Mexico’s tax on income from Social Security benefits as Gov. Michelle Lujan Grisham throws her political weight behind the idea in an election year.

About a dozen states tax Social Security benefits in some fashion. In New Mexico, personal income taxes apply to Social Security benefits while following federal rules for exempting lower-income residents. A full exemption applies to individuals earning up to $25,000 and joint tax filers earning up to $32,000.

Lujan Grisham on Thursday signaled her support for an immediate and full tax exemption for Social Security income, under a bill from Democratic Sen. Michael Padilla of Albuquerque, in a news release.

That fiscal relief would be concentrated among higher earning individuals. Last year, the state Taxation and Revenue Department calculated that 82% of taxable social security benefits are received by residents with income over $50,000 a year.

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The state would forego roughly $90 million in tax revenue from a full repeal, according to a 2021 analysis. That estimate came prior to notification that Americans will receive a 5.9% increase in benefits in 2022 to counter inflation.

Proposals for tax cuts coincide with a major surplus in the state general fund — estimated at $1.6 billion in excess of annual spending obligations. But leading lawmakers are wary of eroding dependable sources of state income under a volatile state economy tied closely oil and natural gas prices and production.

“I’m going to take a hard look” at the proposals to exempt Social Security from taxation, said Democratic Sen. George Muñoz of Gallup, chairman of the lead Senate budget writing committee. “I want to see who truly benefits and what the true costs are to the state.”

He said low-income people who use Social Security as a lifeline won’t benefit. Meanwhile, the elderly in New Mexico can count on other financial relief from Medicare benefits, along with tax-free groceries and medical supplies.

A bill from Democratic Sens. Bill Tallman and Martin Hickey of Albuquerque would do away with some taxes on Social Security income — though not for individuals earning over $72,000 or joint filers earning over $124,000. State government income would be bolstered by changes to taxation of tobacco under the proposal.

One bill from conservative-leaning legislators including gubernatorial candidate and Rep. Rebecca Dow of Truth of Consequences would phase out state taxes on Social Security income gradually between 2022 and 2026. They also offer an immediate repeal in a separate bill.

In a state of 2.1 million residents, about 450,000 people in New Mexico receive Social Security benefits. A worker’s lifetime earnings largely determine the amount of Social Security benefits received.

New Mexico began taxing Social Security income in 1990. Lujan Grisham is seeking election to a second term at the polls in November.

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This version corrects that the tax exemption would apply to lower-income residents earning up to $72,000, or joint tax filers earning up to $124,000, and not to higher-income people.