Currently, Social Security benefits are subject to federal taxation are also subject to New Mexico personal income tax. New Mexico is one of just 13 states that tax the benefit.
During the January 18 State of the State address, Governor Michelle Lujan Grisham for the very first time announced her support calling for Social Security retirement income to be exempted from taxation and she said this:
“New Mexico is one of only a few states that taxes social security. I am calling today for that taxation to end. We must unburden the New Mexicans who rely on social security benefits by cutting their taxes. This is good government, serving the people who have asked us to serve them. New Mexicans deserve it. Because I believe we have an obligation to find ways to make life easier for the people of New Mexico, and I will keep looking for ways to do exactly that.”
According to the latest census figures, New Mexico has a population of upwards of 2.1 million residents with approximately 450,000 people receiving Social Security benefits. A worker’s lifetime earnings largely determine the amount of Social Security benefits received.
HOUSE AND SENATE BILLS INTRODUCED
There are two House Bills and three Senate Bills that have been introduced for the 30-day legislative session that started on January 18 dealing with no taxation of federal Social Security retirement income.
House Bill 48 exempts Social Security income from state taxation.
House Bill 49 phases in tax exemption of Social Security benefits by 2026. HB 49 is sponsored by conservative Republican gubernatorial candidate Representatives Rebecca Dow of Truth of Consequences. Dow wants t phase out state taxes on Social Security income gradually between 2022 and 2026 which will likely be Governor Lujan Grisham’s second term with Rebecca Dow long forgotten as a Republican candidate for Governor.
Senate Bill 49 which would exempt Social Security income from taxation with certain income limits and increases tobacco tax rates to offset revenue impact. This bill is sponsored by Democratic Senators Bill Tallman and Martin Hickey of Albuquerque would do away with some taxes on Social Security income, though not for higher-income households, defined as residents earning $72,000 or less and joint filers earning up to $124,000. State government income would be bolstered by changes to taxation of tobacco under the proposal.
Senate Bill 108 sponsored by Democrat State Senator Michael Padilla of Albuquerque and Senate Bill 121 sponsored by Republican Eunice Republican State Senator David Gallegos both simply exempt Social Security income from state taxation.
GOVERNOR ANNOUNCES SUPPORT OF SENATE BILL 108
Democrat State Senator Michael Padilla of Albuquerque is the sponsor of Senate Bill 108. Republican David Gallegos of Eunice is the sponsor of Senate Bill 121 that would eliminate state income taxation on Social Security income.
On January 18 Governor Michelle Lujan Grisham announced in a press release the introduction of Senate Bill 108 and her support, the legislation sponsored by Albuquerque area State Sen. Michael Padilla. The Governor repeated her State of the State message and said:
“New Mexico is one of only a few states that taxes Social Security. Ending this tax lifts one more burden from the shoulders of New Mexico seniors living on fixed incomes.”
According to Governor’s spokesperson Nora Meyers Sackett Senate Bill 108 supported by the governor does not include a revenue offset, though it could be amended as it advances through the Legislature. Myers has this to say in a statement:
“Our focus as a starting point is exempting Social Security benefits from taxation, and with record state finances, this is the time to make that a reality for New Mexicans.”
SENATOR MICHAEL PADILLA REACTS
Albuquerque area Senator Michael Padilla had this to say about the bill he is sponsoring:
“Social Security is a sacred promise, and it’s time for us here in New Mexico to stop taxing Social Security benefits. … It takes, literally, food off the table of retired New Mexicans. It makes the state look unattractive from a retirement standpoint.”
“We have never had a better opportunity to eliminate income taxes on social security than we do right now. … This is the perfect year to do it because of the revenue-generating capacity we have right now. … Record revenues make it possible to help hundreds of thousands of retired New Mexicans enjoy greater financial peace of mind. … “
The links to quoted news sources are here:
Padilla, a third-term Albuquerque South Valley Democrat, predicted much of the extra income retirees would have if the legislation is enacted would go right back back into New Mexico’s economy. Padilla said he feels confident lawmakers will end up approving the measure during this year’s session.
Senator Padilla argued that eliminating the tax on Social Security benefits would ultimately help all New Mexicans and could make the state more attractive to retirees. Padilla said this:
“The bottom line is folks are living longer. … Their income has to be stretched not for five or 10 years but often for 30 years.”
It was in 1990 that the state’s personal income tax was applied to federal Social Security benefits. Proposals to exempt Social Security income from taxation have failed repeatedly due to concerns that such a change would cost upwards of $83 million a year.
“Think New Mexico” is a Santa Fe-based think tank and has reported that New Mexico is only 1 of 13 states that tax Social Security benefits. Think New Mexico has advocated for the tax to be fully or partially repealed. According to Think New Mexico, fully eliminating the tax on Social Security would save $700 a year for the average senior on Social Security.
According to the 2020 U.S. Census, New Mexicans age 65 or older make up 18% of the state’s population. This is up from 13.2% in 2010 census and 11.7% in 2000. New Mexico’s population is living longer and getting older while its the states younger and educated population in the 30’s and 40’s are leaving the state in droves because of lack of high paying jobs.
New Mexico’s personal income tax is levied on income above $24,800 annually for a married couple filing jointly. Eliminating Social Security taxation will ultimately benefit high-income retirees the most.
OTHER BILLS EXPLAINED
There are what many would say are very minor differences with the 5 bills removing the tax on Social Security retirement income. It is the sponsorship that is the biggest difference in an election year.
Senate Bill 49 is sponsored by Albuquerque far north east heights Democrat Senator Bill Tallman with his district leaning conservative Republican. Tallman’s Senate District has a high number of retirees and his support of not taxing social security will be well received by his constituents. Tallman himself is a retired Santa Fe city government official. Tallman’s bill would increase the state’s tax rate on tobacco products to offset the revenue impact to the state caused by exempting such retirement benefits from taxation.
Other measures, including Padilla’s, call for a straightforward exemption regardless of income level, though at least one proposal would gradually implement the change over a 4-year period and would be fully implemented by 2026.
What is surprising not taxing Social Security benefits is universally supported by all Republican lawmakers. Historically, Social Security is vilified by Republicans.
On January 20, State Senate Republican leadership announced their support of Senate Bill 121 sponsored by Eunice Republican State Senator David Gallegos. Senate Bill 121 is very similar if not identical to Padilla’s Senate Bill 108. Senator Gallegos had this to say:
“There has never been a more important time to give our seniors some tax relief, especially those who are caregivers and those on a limited, fixed income.”
Links to quoted news sources are here:
THE DEPLETION OF SOCIAL SECURITY
Nationally, 65 million Americans receive Social Security.
“Social Security is funded by a 6.2 percent payroll tax paid both by employees and employers. This payroll tax goes into the Social Security trust fund. According to the trustees’ latest projections, the trust fund ensures that Social Security beneficiaries can count on all of their promised benefits until 2035, giving Congress enough time to address Social Security’s longer-term financial shortfall. Currently, 65 million people receive Social Security benefits, including retirees, people with disabilities, widows and widowers, and surviving spouses and children of workers. Most seniors and disabled worker beneficiaries rely on Social Security for a majority of their income. As the pandemic continues to exact a toll on Americans’ health and financial security, Social Security’s guaranteed income is all the more important.”
“According to the 2021 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2034. That’s one year earlier than the trustees projected in their 2020 report. That does not mean Social Security will no longer be around. It does mean the system will exhaust its cash reserves and will be able to pay out only what it takes in year-to-year in Social Security taxes. If this comes to pass, Social Security would be able to pay about 78% of the benefits to which retired and disabled workers are entitled.”
HISTORICAL REPUBLICAN OPPOSITION TO SOCIAL SECURITY
Social Security is without a doubt the largest and most popular entitlement program in the United States. Historically, the Republican Party has always been associated with opposition to Social Security.
On August 14, 1935, when Social Security was created by an Act of Congress and later signed into law by President Franklin Roosevelt, the final congressional vote for Social Security was very lopsided. Only 2% of Democrats voted against Social Security while 33% of Republicans voted against.
At the time of its enactment, Republicans argued it would undermine America by “destroying initiative, discouraging thrift, and stifling individual responsibility.” In 1935, Republican congressman John Taber said Social Security “is designed to prevent business recovery, to enslave workers, and to prevent any possibility of the employers providing work for the people.”
Over many decades, Republicans have always vilified Social Security. The most notable was President Ronald Reagan. In a 1964 speech, Reagan explained that his opposition to Social Security and Medicare is why he switched from the Democratic Party to the Republican Party. Reagan called Social Security “welfare” and said of the possible regret in not stopping the passage of Medicare:
“One of these days you and I are going to spend our sunset years telling our children and our children’s children what it once was like in America when men were free.”
In 2005, Republican President George W. Bush tried to replace Social Security with private retirement investment accounts but the privatization plan failed miserably. Not a single Democrat in Congress would agree to it.
When Vice President Mike Pence was in Congress, he opposed passage of Medicare’s Part D, the drug benefit. He complained that Bush’s proposal to partially privatize Social Security was not enough. Pence wanted much deeper cuts to Social Security than President Bush.
Fast forward to 2017 when Der Führer Trump was in office and when both the United States Senate and the House of Representative were controlled by Republicans. The Republican Congress ram rodded through the 2017 “Tax Cuts and Jobs Act” which relied heavily on cutting Social Security, Medicare and Medicaid to pay for the tax cuts that benefited corporations and the rich almost exclusively.
A U.S. Department of the Treasury report attributed the highest deficit in 6 years to the Republican 2017 “Tax Cuts and Jobs Act.” Simply put, spending more than revenue causes a deficit. Social Security is required by law to pay benefits only from its revenue and trust funds. Social Security is one of the few government programs with built-in fiscal discipline.
COMMENTARY AND ANALYSIS
After Governor Michelle Lujan Grisham gave her January 18 State of the State address, State Republican leadership held a news conference to voice their reaction to the speech. Not at all surprising in an election year, Republicans were negative. Top-ranking Republicans went so far as to accuse Lujan Grisham of shifting her priorities because it’s an election year.
New Mexico’s Republican Party Chairman Steve Pearce, who lost to Lujan Grisham in 2018 for Governor, said her policies have not yielded results, despite spending increases over the last three years and he said:
“This governor needs to take a serious look at what is happening around New Mexico before taking another band-aid approach to fixing our crises.”
New Mexico Republican State Party Chairman Steve Pearce was the Southern Congressional District 2 Congressman for 12 years during which time he was a member of the ultra-conservative and decidedly pro Der Führer Trump Freedom Caucus, meaning their freedoms and not ours.
Congressman Steve Pearce voted to repeal the Affordable Care Act which many New Mexicans rely on and voted with Der Führer Trump 94.6% of the time. In 2017, Pearce voted for the Republican 2017 “Tax Cuts and Jobs Act” which gave corporations and the richest 1% tax cut relief. Those tax cuts relied heavily on Social Security cuts, Medicare cuts and Medicaid cuts to pay for the tax cuts for large corporations and the rich.
When reacting to the Governor’s State of the State address, not a single Republican holding a leadership position could bring themselves to say anything good about the Governor nor say what they agreed with or what they could support. Not a single Republican at the post speech press conference mentioned the Governor’s proposed tax cut.
House Republican Floor Leader James Townsend of Artesia took the “smart-ass” approach when commenting on the Governor’s State of the State address and he said:
“I thought for a minute she actually became a Republican for the election cycle.”
The Republican legislators totally ignored the Governor’s proposal to exclude Social Security benefits from state income taxation. Instead of giving any credit to the Governor they simply turned around and introduced their own bills on excluding Social Security income from state income taxation and the Republican leadership endorsed the Republican sponsored Senate Bill 121 .
Simply put, what is happening in the New Mexico legislature is that Der Führer Trump Republicans are falling all over themselves to support excluding Social Security from state income taxation. They are doing it to pander to senior citizens of New Mexico because it’s in an election year. The Republican New Mexico legislators, who usually walk “lock step” with their Chairman Steve Pierce, realize that they cannot afford to alienate one of the strongest and most reliable voting blocks in New Mexico: senior citizens who are on fixed income and who rely on social security to survive. The problem for Republicans is that New Mexico senior citizens are not as stupid as they think they are and see right through an election ploy by Republicans.
It has been reported that on January 25, HB 48 bill exempting Social Security retirement income from taxation stalled in the House Labor, Veterans’ and Military Affairs Committee on a 4-4 vote. Four of 5 Democrat Representatives on the committee voted No while Albuquerque Democrat Miguel P. Garcia voted yes with the 3 Republicans on the committee. The tie 4-4 vote means the proposal, one of several measures filed at the Roundhouse dealing with taxing Social Security benefits, could be brought back for further debate. There are 5 bills introduced on no State taxation of social security with Governor Lujan Grisham endorsing SB 108, the bill sponsored by Albuquerque South Valley Demarcate Michael Padilla.