On March 6, the New Mexico House of Representatives released a massive $959 million tax package. House Bill 547 is nearly 70-pages long. The Omnibus Tax policy bill offers a number of credits and relief for most taxpayers across the state but it falls short of Governor Michelle Lujan Grisham’s efforts to offer much larger rebate checks to state residents battling inflation and the after-effects of COVID-19.
The House Taxation and Revenue Committee, chaired by Rep. Derrick Lente, D-Sandia Pueblo, voted 9-5 to approve the bill on a party-line vote, with all Democrats voting in favor and Republicans in opposition, before it was released to the public and Lente held a press conference on the bill. House Bill 547 would provide $300 rebates for New Mexico taxpayers, further reduce the state’s gross receipts tax rate, increase alcohol taxes and expand a child tax credit so that parents could get up to a $600 per child tax break.
House has been in the works for a number of weeks. It is a consolidation of more than a dozen different tax proposals. The ultimate goal is to use the state’s $3.6 Billion surplus from oil an gas revenues to make New Mexico’s tax code more progressive in reducing overall taxation in the state.
DEVIL IN THE DETAILS
The major provisions of House Bill 547 are as follows:
NEW TAX BRACKETS: House Bill 547 would create 2 new tax brackets in the state’s personal income tax system including a new top tax bracket of 6.9% which is an increase from the current 5.9% top bracket. The top tax bracket would apply to income over $500,000 per year for married couples filing jointly. Those who fall in the highest taxable income bracket of married couples filing jointly who are earning $500,000 or more will see an increase from 5.9% to 6.9% in tax payouts.
REDUCED REBATE CHECKS: Rebate checks of $300 for individual taxpayers and $600 for married couples are provided for in the House Bill 547. The $300 are less than half the $750 rebate amount that Gov. Michelle Lujan Grisham proposed. About $440 million, half of the initial cost of the tax package, would go toward issuing rebates issued to all New Mexicans who filed tax returns in 2021, perhaps by as soon as this spring.
According to Rep. Derrick Lente, D-Sandia Pueblo, the bills sponsor, the size of the rebates were scaled back during legislative negotiations because lawmakers have $1 billion to enact tax changes under a $9.4 billion budget bill approved by the House last month which is still awaiting final approval in the Senate. “ Lente claims the governor’s initial plan would have completely extinguished the legislatures ability to do anything tax-wise for the state.
LOW INCOME TAX REBATES: A low-income tax policy component is included that offers a series of tax rebate exemptions for individuals, those over 65, blind residents and children.
RURAL HEALTH CARE CREDIT: A rural health care practitioner credit for up to $5,000 for physicians, dentists, podiatrists and other medical professionals and up to $3,000 for pharmacists, dental hygienists, nurses and midwives and other medical professions is provided.
CHILD INCOME TAX CREDIT: A child income tax credit, depending on the gross income of the taxpayer, of up to $600 per child is provided. House Bill 547 provides Child Income Tax Credit of up to $600 for low income families, which is an increased from $175, and $400 to $200 for higher earners. President Joe Biden increased the federal child tax credit during the pandemic and government studies found it reduced childhood poverty. The increased federal credit has now disappeared with the pandemic.
ELECTRIC VEHICLE INCOME TAX CREDITS: A refundable electric vehicle income tax credit of $2,500 for every electric vehicle purchase or $4,000 for households under 200% of the federal poverty level is provided. An additional $300 credit would be allowed for car-charging equipment and installation.
ALCOHOL TAX: House Bill 547 contains an alcohol tax provision that would raise the tax on beer, wine and spirits by 15 cents per gallon. Local microbreweries, distilleries and wineries would be exempted from the tax hike. The increased alcohol tax would generate close to $36 million by the 2025 budget year for a new state fund. The new fund would be used to pay for expanded alcohol treatment and prevention programs, as well as support for victims of alcohol-related crimes including domestic violence. At 86.6 deaths per 100,000 people in 2020, New Mexico has the nation’s highest alcohol-related death rate. There have been some lawmakers have during the 2023 legislative session an even bigger alcohol tax hike aimed at reducing consumption. All increases in the alcohol tax have been effectively opposed by alcohol industry lobbyists who argued such a policy would hurt local New Mexico businesses. Jimmy Bates of Premier Brewing Company told the committee the tax could increase the cost beer by as much as 37% in taxes for beer alone.
CORPORATE TAX: Currently there are two corporate tax rates: 4.8% and the 5.9%. House Bill 547 would make the corporate tax a flat 5.9%.
CAPITAL GAINS TAX: Capital Gains Tax from the sale of stocks and businesses would be increased. House Bill 547 proposes that the 40% deduction on unearned income be capped at $2500, bringing New Mexico in-line with 41 other states.
NO TAX “PYRAMIDING” PROPOSAL
What is glaring from reading House Bill 547 is the widely discussed proposed tax exemption for accountants, architects and other professional services that had been proposed as a way to reduce tax “pyramiding,” or taxes being levied several times on the same goods or services. The tax “pyramiding” legislation has bipartisan support and the Governor’s support. The tax pyramiding provision proposal has drawn fierce opposition from Albuquerque and other New Mexico cities and counties, however, as city officials argued it would reduce their revenue streams and complicate efforts to hire more police officers.
DEMOCRATS DEFEND TAX PACKAGE
During the March 6 news conference announcing House Bill 547, House Taxation and Revenue Committee Chairman Representative Derrick Lente, D-Sandia, said the process of putting together HB 547 included combining some of the best elements of roughly 50 separate tax policy bills that came into play during this year’s 60-day legislative session. He said all committee members and the Legislative Finance Committee analysts played a role in shaping the bill.
Representative Derrick Lente had this to say about HB 547:
“The tax rebates are only a small portion of the entire tax omnibus bill here. At this point in time, what’s in a tax package is that if passed, as is — New Mexicans would receive, if they filed taxes in 2021, they would receive a rebate of $300 for a single filer and $600 for those that are married. Another part of it is that it provides tax decreases for a number of our middle- and lower-income tax brackets that will receive and enjoy that benefit of a reduced tax rate.
It also reduces the total tax rate within the state another .5%. So, if you look at that, in addition to the point to the quarter percent tax rate that was reduced last year, it’s a three-quarter of a percent tax rate reduction in GRT, which is going to be huge for the state of New Mexico,” he continued. “We also look at ensuring that alcohol is paying their fair share to help encourage and provide resources for programs that help with alcoholism and substance abuse issues. We look at other aspects of childcare tax credits that have been increased—a number of things that help working families throughout New Mexico.”
“We’re trying to be creative and yet responsible in giving back dollars to hardworking New Mexicans—But in doing so, we want to make sure that if this is generational income we’re working with now, we want to make sure we’re creating generational outcomes for those in the way that we use this money for tax purposes and tax policy. “
The tax proposal fails to meet Gov. Michelle Lujan Grisham’s $1 billion tax relief plan from the state’s $9.4 billion budget — $750 for single filers and $1,500 for joint filers. Lente said this:
“As a committee, we were given $1,000,000,000 of tax capacity to work with, and so had we accepted the proposal by the governor of $750, that would have completely extinguished and gone over our budget of $1,000,000,000 just by providing those tax rebates to New Mexicans.”
House Speaker Javier Martínez, D-Albuquerque Martínez for his part said during the committee hearing lawmakers had to bring various tax policy bills together into one package. Otherwise, he said “it’s almost impossible to keep track of how it impacts the capacity of House Bill 2”, the state operating budget legislation.
Democrats on the committee defended the tax package. They all contended it will help New Mexicans across the state by offering tax exemptions for lower- and middle-class earners, child income tax credits for eligible taxpayers and also will drop the state’s gross receipts tax by .5%.
House Speaker Javier Martínez, D-Albuquerque insisted the proposed tax package would help businesses while defending the process used to bring the bill forward. Martínez said this:
“It’s a small number but it’s a lot of money. … I think this is very good for business. …There’s nothing in here that’s not fully-vetted, fully-baked and fully-fried.”
During the March 6 news conference announcing House Bill 547, House Taxation and Revenue Committee Chairman Rep. Derrick Lente, D-Sandia Pueblo had this to say about House Bill 547:
We believe this affects positive change for the working families of New Mexico. … [I predict families] making the state’s median household income of about $54,000 per year [will] see about $200 in yearly tax savings from the gross receipts tax cut alone.”
To those who might face a tax increase under the personal income tax code changes, Lente suggested that doctors, engineers and other high-wage earners could afford the increase. Lente also said the proposed gross receipts tax reduction that would take the state’s base tax rate on goods and services from 5% to 4.375% , starting in July 2024, would be a boon for businesses.
Representative Lente acknowledged that Governor Lujan Grisham is not on board with the cut in rebates and he said:
“We scaled that back to the $300 per single filer, $600 per married couple filer, which brought our total cost to about a little under $500 million, which will then allow us to do these other creative tax structure policy changes. … She’s not OK with that. … There was discussion that their sweet spot, I believe, was going to be at $500 per single and $1,000 for married couple. That being said, we are a couple hundred dollars away from that goal. … But nonetheless, we think that the initiatives as we target rural health care, as we target other initiatives in this tax package, far outweigh those one-time payments.”
Amber Wallin, the executive director of the Albuquerque-based advocacy nonprofit New Mexico Voices for Children, said this after the committee vote:
“[House Bill 547] is a big win for the whole state. It is really smart tax policy that will improve economic opportunity and equity for New Mexico families, workers, and communities with improvements to the Child Tax Credit, personal income taxes, and a rebate for low-income earners. … All of these things improve fairness in the tax code and level the playing field. ”
Wallin called the Gross Receipts Tax cut “significant” and said it is one that will “benefit all residents and businesses in the state.”
OPPOSITION AND DISAPPOINTMENT EXPRESSED
The 5 Republicans on the House Taxation and Revenue Committee voted against House Bill 547. The Republicans said the bill has some positive elements within it, they also said it does not specifically help small businesses or address job growth initiatives that are necessary to help businesses still reeling from the COVID-19 pandemic. Rep. Jim Townsend, R-Artesia said this:
“What we are doing is helpful to [New Mexicans] but it’s putting a Band-Aid on the issue [of taxation.]”
During the March 6 meeting of the House Taxation and Revenue Committee Representative Jason Harper, R-Rio Rancho, said that House Bill 547 could mean a tax increase for small businesses who pay taxes under the personnel income tax code. Harper lamented that Democrat sponsors of the bill omitted a proposed tax exemption for accountants, architects and other professional services that had been proposed as a way to reduce tax “pyramiding,” or taxes being levied several times on the same goods or services. Harper said this during the hearing:
“Are we just talking the talk or are we serious about real reform?”
Not at all surprising, Greater Albuquerque Chamber of Commerce President and CEO Terri Cole called House Bill 547 very disappointing. Cole described the bill as the latest in a string of measures backed by the Democratic-controlled Legislature that make it harder for businesses to stay open in New Mexico. Cole said this:
“The last thing we need is capital flight out of New Mexico.”
Governor Lujan Grisham’s spokeswoman Maddy Hayden said House Bill 547 falls short of the governor’s expectations and Hayden said this:
“The governor has made it clear to leadership that hard-working New Mexico families deserve more than $300. … She will continue to fight to get more dollars in the pockets of New Mexicans, and fully expects the Legislature to boost that number up to at least $500 for single filers.”
The links to quoted news sources are here:
March 7 New Mexico Political Report “Lawmakers unveil massive omnibus tax policy bill” at https://nmpoliticalreport.com/
COMMENTARY AND ANALSIS
New Mexico in the Top 15 highest tax rate states in the nation, placing it at a distinct competitive disadvantage with such neighboring states as Texas, which has no state income tax. State income tax reform has been long overdue and this years $3.6 Billion dollar surplus provides an unprecedented opportunity to offer substantial tax relief for small businesses, the middle class and for economic development. Simply put, House Bill 547 falls short and needs more work.
House Bill 547 has some very positive elements to it including expanding the state’s child tax credit to up to $600 per child, the $300 rebates to residents, extending the sunset date on the military retirement pay tax exemption to 2031, adopting a “single sales” factor apportionment for corporate taxes that could incentivize multi-state companies to expand and hire more people in New Mexico, and reducing the state’s gross receipts tax base rate by 0.625%.
House Bill 547 also has some very negative elements to it including overhauling the personal income tax code so that many small-business owners who file personal income tax returns will pay higher taxes by creating two new tax brackets, including a new top bracket of 6.9%. It also penalizes personal savings, investment and wealth creation by increasing taxes on all capital gains.
Representative Derrick Lente, D-Sandia, said the process of putting together HB 547 included combining some of the best elements of roughly 50 separate tax policy bills that came into play during this year’s 60-day legislative session. However House Bill 547 totally ignores and omits the well crafted proposal of Democratic Governor Michelle Lujan Grisham and Rio Rancho Republican Representative Jason Harper, R-Rio Rancho as embodied in House Bill 367 which would lower the gross receipts tax and address pyramiding which is when taxes are levied several times on the same goods or services. The tax exemption is a sure way to reduce tax “pyramiding” or taxes being levied several times on the same goods or services.
House Democrats essentially caved into the New Mexico Municipal League and the larger cities of Albuquerque, Santa Fe and Las Cruces by omitting the much-needed proposed tax exemption for accountants, architects and other professional services that would reduce “tax pyramiding. ” There is little doubt the provision would have provided significant relief to small businesses. Several lawmakers have worked on this issue for a number of years and it has bipartisan support and the governor’s endorsement in this session, yet that is ignored in House Bill 547.
The final version of House Bill 547 will likely advance quickly to the House floor for a final vote after passing the House Taxation and Revenue Committee. There is no doubt that it will face heavy opposition from Republicans and additional scrutiny and possible changes in the Senate in the final days of the 2023 Legislative session. One change that should be included by the Senate are the tax “pyramiding” prevention provisions.
Democrats in the 2023 legislative session hold a 45-25 majority in the House and a 27-15 edge in the Senate and this year’s session is a 60 day session. The session ends March 18. With just 10 days left of the 2023 legislative session, Senate and House Democrats need to get their act together and move as quickly and as aggressively as possible to get a final votes on all of their pending legislation in order to avoid embarrassing Republican filibusters as what happened last yeat. If not, they will have only themselves to blame.