On March 1, 2019, on a 40-25 vote for passage, the New Mexico House of Representatives approved House Bill 6 raising taxes.
The 40-25 vote was along party lines with Democrat Representatives Patricio Ruiloba of Albuquerque and Candie Sweetser of Deming voting against the legislation.
The legislation if adopted as is by the New Mexico State Senate will raise $356 million a year in new state revenues that will be dedicated to public schools, government operations and roads.
$320 million of the new revenue will go to public schools and other government operations and $36 million will go for state and local road projects.
A $7 billion state budget is pending in the Senate and it boosts overall spending nearly 11% over current levels.
The Senate budget includes a $449 million increase in public school spending.
The HB 6 increases personal income taxes on some high-income earners.
It raises gross receipt taxes on purchases of cigarettes and car sales.
The House Bill imposes new taxes on charitable hospitals, online retailers and e-cigarettes.
Tax breaks include bigger tax credits for low and middle-income families and increased new deductions for children and dependents.
During the House floor debate, Republicans strongly criticized the tax increases as a “money grab”, the tax increase will “choke” economic growth and the tax increase is not needed because of the States $1.2 billion budget surplus this year from the oil boom.
According to House Democrats, the state budget is too heavily dependent on the volatile royalties paid by the oil and gas industry.
Two years ago, the state had a budget crisis leading to a reduction in the states credit rating.
The strongest argument made by Democrats is the tax increase is necessary to stabilize government revenue and ensure New Mexico can support the dramatic increase in continue spending on education mandated by a landmark state court ruling.
Education is the number one priority for Democratic Governor Lujan Grisham and the legislature because of the District Court ruling.
On July 20, 2018, Santa Fe District Court Judge Sarah Singleton ruled that the state of New Mexico is violating the constitutional rights of at-risk students by failing to provide them with a sufficient education mandating massive increases for public education.
DETAILED HIGHLIGHTS OF TAX REFORM BILL
The major highlights of the tax reform overhaul enacted by the House include:
1. The House approved bill revises the state’s income tax brackets to make the system more “progressive” rather than flat and repealing a 2003 personal income tax cut enacted.
The top tax bracket for the highest earners will increase from 4.9% now to 6.5%:
For a married couple filing jointly, the top tax bracket will start at $300,000 or more for families. The tax increase is expected to raise about $132 million.
A married couple making $400,000 a year will pay a little more than $3,000 in income taxes.
A married couple making $70,000 a year, by contrast will see a $4 decrease under the new taxation.
2. The House bill doubles the “working families” tax credit allowed for low- and moderate-income workers. The credit is for people who are eligible for the federal earned income tax credit. Instead of being able to claim 10 percent of their federal credit, they could claim 20 percent. It’s expected to cost about $53 million in revenue.
3. The House bill establishes an income tax deduction for taxpayers who have more than one dependent as part of an effort to offset an unintended state tax increase caused by the 2017 federal tax overhaul. It’s expected to cost about $48 million in revenue.
4. The House Bill revises the tax systems for hospitals, with the goal of creating a level playing field for not-for-profit, government and for-profit hospitals. Not-for-profit hospitals currently are exempt from paying state taxes. It’s expected to raise $92 million in general fund revenue in the next fiscal year.
5. The House Bill imposes gross receipts taxes on sales made by online retailers to New Mexicans, including the imposition of the city and local parts of the tax. It’s expected to raise $42 million in general-fund revenue next fiscal year.
8. The House bill repeals parts of the capital gains deduction allowed for personal income taxes, which will raise about $62 million.
9. HB 6 increases the excise tax on motor vehicle purchases from 3 percent to 4.2 percent, which will raise about $65 million. The money would largely go to the general fund, though some lawmakers suggest the idea of changing the bill to mandate the revenues be used for road and highways.
10. HB 6 raise taxes on tobacco and impose taxes on vaping products, which would generate $20 million for the state general fund.
11. HB 6 changes how corporate income taxes are calculated as a way to keep multistate corporations from “shifting” their income to another state to avoid New Mexico taxes. It would help some companies and hurt others, legislative analysts said, so the overall impact on state revenue is unclear, but likely positive.
COMMENTARY AND ANALYSIS
There is less than two weeks left in the 2019 legislative session and the tax overhaul legislation now heads to the Senate for approval where it may be met with some resistance by the Senate Appropriations Committee.
It is not at all surprising that the New Mexico Legislature is considering tax reform legislation and increasing taxes to some extent.
Much of the increase in spending under consideration by the New Mexico Legislature will require recurring revenue sources, especially for public education and teacher salaries.
During the last 8 years, former Republican Governor “She-Who-Must-Not-Be-Named” resisted and opposed any and all tax increases, no matter the need or justification, to avoid any and all tax increases at all costs, the result which is a major decline in the delivery of essential government services.
Instead of supporting tax increases former Republican Governor “She-Who-Must-Not-Be-Named” was more concerned about following Republican dogma of “no tax increases” and “reducing the size of government” by ordering spending cuts, reduced take-home pay for state employees, budget-balancing maneuvers and a downsizing of state government.
There are some 3,000 positions that are vacant or that have been lost in state government with government employees required to do more work for the same pay to fill the void of lost personnel.
With the election of Democrat Governor Michelle Lujan Grisham, it makes it more likely than not that tax code changes under HB 6 will be enacted with very few changes in the Senate and the Governor will sign it.
Calling for increasing taxes when the state is experiencing at least a $1.1 billion in additional revenues from the oil and gas production is a very difficult sell but it is necessary.
The $1.1 billion-dollar surplus is a one-shot infusion of funding, that once spent, it’s gone.
Historically, the oil and gas industry is way to volatile to presume that billion dollar surpluses will continue over a period of years that can fund recurring budget expenditures for education and essential government services
The highest and best use for the $1.1 billion is to spend it on major projects such as road and bridge construction and repairs or construction of new facilities such as replacing aging and deteriorating Tingly Coliseum with a state-of-the-art facility.
Less than two weeks and counting until the 2019 legislative session ends, and the last two weeks is always very hectic with the passage of bills by both chambers.