Economy Research Tax and Budget

Stimulating New Mexico’s Economy by Phasing out its Personal Income Tax

A few years ago New Mexico enacted significant rate cuts in the state’s personal income tax. Paul Gessing, the Foundation’s president discusses the success of these cuts and argues that in order to stimulate the state’s economy (unlike the Congressionally-passed stimulus), policymakers should consider phasing out the state’s personal income tax entirely.

Gessing’s paper, “Stimulating New Mexico’s Economy by Phasing out its Personal Income Tax,” which is available here discusses the economic benefits New Mexico has received from reducing the income tax rate from 8.2 percent to 4.9 percent. The paper also lays out a specific plan for restraining spending over the next four years in a way that will allow the state to eliminate the tax within four years.

Economy Energy and Environment

The Problem of Over-Regulation


Imagine if your corner gas station had to obtain government approval every time it raised or lowered the price of a gallon of unleaded. While that may seem like a great way to keep gas prices low, in reality, such policies, enacted as a result of OPEC’s embargo, caused the long gas lines of the 1970s. Thus, a situation that would have seen price increases and subsequent conservation on the part of consumers instead resulted in gas not being available at all.

Indeed, as Nobel Award-winning economist Friedrich A. Hayek pointed out decades ago, government-run economies are doomed to failure because governments don’t have enough information to make pricing decisions in a marketplace.

The situation relating to PNM and its recent difficulty in obtaining rate increases from the Public Regulation Commission is not altogether different. Energy prices have risen dramatically in recent years while at the same time PNM has been forced to invest in wind and solar in order to fulfill state-mandated renewable energy standards 10 percent of our electricity must come from these “renewables” by 2011. But rates have not risen for 20 years.

The Rio Grande Foundation is by no means a shill for PNM, though. In fact, the organization does not take a position one way or another on PNM’s proposed 14.7 percent base rate increase or any other change in the rates charged by the utility. Instead, we’d like to see a competitive marketplace in which PNM is just one of many utilities competing to provide the best service at the lowest price.

Unfortunately, until New Mexico deregulates its utilities to the point that consumers can choose their utility and utilities can adjust their rates without the approval of the government, this will not occur.

While painted as a boon for utilities, true deregulation would actually be most beneficial for consumers. For starters, it would encourage more efficient pricing, thus leading to lower prices in the long term. Building new power plants costs millions and even a billion or more dollars depending on the type. Yet, much of this power is necessary only when electricity usage rises to “peak” levels on hot days when businesses and homes are running their air conditioning and otherwise using maximum power.

PNM has begun to address this issue with its “Power Saver program,” which offers financial incentives for consumers to cut back electricity usage at peak times. This program is one market-friendly way to cut costs by eliminating the need for future power plants. Of course, this is also good for the environment. While PNM is finally rolling this program out, other utilities have gone far beyond it in terms of improving efficiency and cutting costs.

Among the most innovative utilities operating in the deregulated state of Maryland, Baltimore Gas and Electric recently began an efficiency/conservation program that will generate $42 million in revenue for the utility over the next thee years by enabling the company to identify outages more quickly and bill customers based on more accurate information. Ultimately, the utility hopes to avoid having to invest in additional power plants until absolutely necessary.

Dynamic pricing expands on PNM’s “Power Saver Program” by allowing the utility to raise prices during peak times and reducing prices during off-peak times. Through the use of market incentives, consumers would be encouraged to shift their energy usage to those days and hours when prices are lowest. Since power plants run 24 hours a day with off-peak power often going to waste, using incentives to shift usage is good for consumers, utilities, and the environment.

At this point, there is no way to tell if PNM’s rate hike request is economically justified because the utility is not operating in anything resembling a market. However, it is clear that we’d all be better off if the political process were replaced with economic decisions made by utility customers. Only then will we know if rate hikes are justified or the result of poor management.

Paul Gessing is president of the Rio Grande Foundation, a research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Economy Education

Children are the Losers as Education Productivity Lags Overall Economy

There has been a lot of negative talk recently about the struggling American economy. Most of us are all-too-aware of falling house prices, slowing economic growth, and the possibility of recession.

While all of us should be concerned about the short-term economic prospects for our nation’s economy, the long-term track record of the American economy is very good. Productivity has risen consistently over the years and by any objective measuring stick, Americans are living better, more fulfilling lives than ever before.

This improved standard of living is the direct result of improved productivity. The fact that we as a society are able to bring more goods and services to more people using fewer resources – human or otherwise – is a big reason that we can afford better cars, bigger, better televisions, and other things that make life richer and more comfortable.

While productivity has grown exponentially in technology-intensive areas and other “cutting edge” areas of the economy, the gains have not been shared by other areas of the economy. In fact, in his new study, “Elementary Principles of Monopoly: Government-Run Schools Get Less with More,” Rio Grande Foundation fellow Dr. Harry Messenheimer, clearly shows that K-12 education in New Mexico and Hawaii is falling behind the rest of the economy due to poor productivity.

Messenheimer uses productivity data from the Bureau of Labor Statistics (BLS) and compares it with testing data from the National Assessment of Educational Progress and setting it against data on school funding and student populations. The contrast between our relatively free economy at large and our taxpayer-financed, government operated, K-12 monopoly is stark.

Since 1992, while productivity in our broader economy has grown by 41 percent according to BLS data, productivity in New Mexico schools has fallen by 22.4 percent.

Since improved productivity means doing more with less, declining productivity means that schools are doing less while consuming more resources. Since higher productivity makes us better off, lower productivity in our schools means that students are learning less than they were just 16 years ago.

So, what is the solution? The simple answer is to make our schools more like the rest of the economy. This can mean different things, but it probably does not mean that government should both provide the service in question (education) and have a taxpayer-financed monopoly.

One indicator of just how much government controls our schools is the fact that even in programs like food stamps the government doesn’t actually grow the food. Rather, it taxes the rest of us in order to provide a benefit for those who presumably cannot afford it otherwise. Food stamps are nothing but a voucher program for food. Vouchers are viewed as a “radical, free market” proposal in the realm of education.

Many free-market reformers might prefer to see our schools change in the freewheeling, innovative image of Google, but this is probably too much of a leap given the power of teachers’ unions and the inertia that has built up in our educational system over the years. “Google” might currently be unattainable, but market forces, particularly those that give parents and children greater control over education, must be adopted if we want to see innovation that increases educational productivity.

If the very nature of our education system is not changed, our lack of educational productivity will ultimately have an effect on overall economic productivity, thus making us all poorer.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Economy Energy and Environment Oil & Gas

Galisteo Drilling a Boon for Area and State


In most places in the United States, including New Mexico, oil and gas discovered on one’s land would be seen as a blessing, and in fact large fortunes have been made through surface leases and royalties. After all, oil and gas have been integral to our daily lives for more than a century and will remain so for the foreseeable future.

Eventually, economically viable (i.e. without government subsidies) alternative forms of energy might be found, but until then, oil and gas production benefits not only industry investors and company shareholders, but workers, landowners and government coffers.

Unfortunately, the fact that oil and gas drilling in the Galisteo Basin is even being considered by Houston-based Tecton Energy has caused an ill-informed but vocal group of anti-growth activists to protest that Tecton might make a profit on a venture in which they are willing to invest their own capital despite a significant risk of failure. If they do not succeed in their quest, only they and their investors lose: If successful, everyone wins.

Before we run Tecton out of town and the Galisteo Basin is shut off from future exploration, let’s look at the real issues, free of emotion. We all benefit from oil and gas production, from fuel for our automobiles, to fuel for the trucks that deliver food and other products to local stores. Beyond transportation, plastics used by everyone are hydrocarbon-based.

Clean-burning natural gas is used for home heating and provides
18 percent of America’s electricity generation, a number which is growing rapidly. Gas is really today’s clean, alternative energy source, but more is needed to offset declining U.S. production. Perhaps the Galisteo Basin will yield gas as well as oil — only drilling will tell.

Since Santa Fe County has no production yet, its residents benefit from long-established reserves in places like Farmington, Hobbs, Artesia and Roswell. If it is acceptable there, why are Santa Fe residents so against drilling in the Galisteo Basin? An old adage in the oil business is simply “oil is where you find it.” In other words, we cannot dictate where Mother Nature and the ancient processes of geology created it. The Galisteo Basin just might be one of those favored places!

Part of the issue is undoubtedly the fact that the median household income in Santa Fe is in excess of $42,000, while in San Juan County the number is $34,000, in Chaves County it is $28,500, and in Lea County the figure is $30,000.

To an objective outsider it would seem that for some local opponents of oil and gas production, such activities are fine for the folks in the northwestern and southeastern parts of the state, but heavy industry should be kept out of their sight. Many oppose exploration and production based on environmental concerns, primarily on the perceived threat of damage to fresh water aquifers.

This is a valid concern, but standard industry practice entails installing steel casing through aquifers that are usually shallower and separate from the objective oil and gas zones. Thus, the aquifers are sealed off from any contamination. Modern technology will utilize centralized drilling and production pads, limiting wellheads and facilities to a small footprint.

If the residents of the Galisteo Basin are so committed to preventing exploration of legally acquired surface and mineral rights, they and any other sincere residents of Santa Fe should form a consortium to buy those rights from Tecton and forego the rewards of potential oil production. They could even sell the water to Santa Fe, as a value will have been placed on that valuable commodity!

As residents of New Mexico, a state that is reliant for a greater percentage of its budget on severance taxes than all but Alaska and Wyoming, we benefit from the largesse that oil and gas revenue brings to the state. Before stopping drilling in Galisteo Basin, we should look at the pluses and not just the perceived minuses of drilling.

 Santa Fe County resident James B. Taylor serves the Río Grande Foundation as an adviser on oil and gas issues.

Economy Energy and Environment Oil & Gas

Renewable Energy, Fossil-Fuels Both Vital to U.S. Future


Jason Marks, the State Public Regulation Commissioner from the Albuquerque district, recently authored an article criticizing the vote by Congress, and specifically New Mexico Senator Pete Domenici, which would allow the current renewable energy tax credits to expire in 2008 as was determined when they were passed years ago. Unfortunately, Mr. Marks did not take into consideration all the issues at hand.

To begin with, we must recognize that alternative and renewable fuels are not in a race with traditional fossil-fuels as a means to provide energy for our current needs and those of the upcoming generations. They are both integral components of our long-range energy future.

It must also be noted that the renewable energy tax credits were tied directly to the passage of over $13 billion in new energy taxes to be levied upon our domestic energy producers. These new taxes would have dramatic negative economic consequences here in New Mexico and across our nation as they would be passed directly down to us all in the form of higher prices for gasoline, home heating oil and in the costs of general goods and services.

This would have come at a time when the costs of energy are at or near all-time highs, and when our economy is under a great strain and facing what many fear will be a recession. These higher costs-of-living would be especially difficult for individuals and families who are struggling simply to make ends meet and could be the last straw for businesses that are already under siege by higher costs, slowing demand and competition from global trade.

New energy taxes were proposed chiefly as a means to punish domestic energy companies for lingering high world energy prices over which they have no control. Yet, in their zeal to pacify angry voters, backers of this proposal overlooked the important ways in which higher energy taxes would harm our nation and our economy by further increasing American dependence on foreign oil.

Obviously, massive new taxes and disincentives for production will only make domestically produced energy more expensive than imported supplies. The net result of this is an overall decrease in domestic output and greater dependence on production by others; the polar opposite of our national goals.

Perhaps most dangerous for our nation in these times of great political unrest is the fact that higher energy taxes for domestic producers put our U.S. energy companies at a severe competitive disadvantage with state and foreign-owned companies worldwide. These entities control much of the world’s known energy reserves and are increasingly reluctant to allow us to participate. America faces growing risks of source-nationalism, limited access and infrastructure constraints at every turn. Taxes that limit energy companies’ ability to participate worldwide or reduce their incentive to develop greater domestic output are against our national interests.

The development of increasing pools of traditional energy and new sources of alternative and renewable power are not mutually exclusive goals, as Mr. Marks seems to believe. There is no reason to pit one against the other, nor is there any ambiguity in Senator Domenici’s past support of alternative and renewable energy coupled with his recent vote against new energy taxes. These are equally valid steps toward a continued search for answers to our national energy dilemma.

Paul Gessing is President of the Rio Grande Foundation; a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.


Less Dependence on Federal Dollars Could Force New Mexico to Generate its Own Wealth

Much has been made recently over congressional efforts to cut funding at Los Alamos and Sandia national labs in New Mexico. As important as that discussion has been, the issue of cuts at the labs becomes more of a long-term issue with the recently announced decision by U.S. Sen. Pete Domenici not to run for re-election. Thus, no matter what happens during the current budget discussions, the long-term future of the labs is truly up in the air.

But is that such a bad thing for New Mexico’s economic future?

While it is true that in the short term, these efforts could remove hundreds of millions of dollars from the state economy and cost many New Mexicans their jobs, in the long run, a reduced federal presence in New Mexico might be good thing.

Right now, New Mexico receives $2 in federal funds for each $1 we pay in federal taxes – more than any other state in the country.

Despite this large federal presence in our state, New Mexico’s economic picture relative to other states remains rather bleak. We have the third-highest poverty rate, and personal-income levels are among the lowest in the nation.

Obviously, the labs are not the only manifestation of the federal presence in New Mexico. We have Indian reservations, federal lands, military bases and large numbers of retirees on Social Security and Medicare, not to mention welfare recipients on Medicaid and other programs.

With all of these programs funneling money into New Mexico, many of our policy leaders seem to think federal tax dollars come from heaven. But, as any economist worth his or her salt will tell you, “There is no such thing as a free lunch.”

To New Mexicans, this means that while our federal burden might be less than that borne by taxpayers in other states, New Mexicans bear a portion of the federal tax burden. If our elected representatives believe cuts are in order – budget cuts of any kind being an exceedingly rare occurrence in Washington these days – shouldn’t we at least do our share?

Rather than complaining about our own ox being gored in the form of relatively minor cuts – at least in the grand scheme of the federal budget – New Mexicans through their elected representatives should demand a smaller, more accountable federal government that leaves money in taxpayers’ wallets.

After all, it is the private sector, not government, that creates wealth in New Mexico and in the economy as a whole.

Governments – whether we are talking about entitlements such as Medicare and Social Security or the labs – simply redirect resources from those who produce wealth to those who consume it.

Whether these programs are possible and necessary or not, government does not produce anything that couldn’t be produced more efficiently by the free market – with the possible exception of reams of paperwork.

New Mexico’s leaders both in the state and in Washington should dedicate themselves to making New Mexico a wealth-generating state rather than a wealth-consuming state.

While the loss of some jobs at the labs might be an economic blow in the immediate future, it might put pressure on the Legislature and Gov. Bill Richardson to cut taxes, offer regulatory relief for businesses and look at innovative ways to build the state’s economy.

At the same time, perhaps the budget cutting will spread in Washington. Although it rarely pays to be optimistic when it comes to constraining federal spending, even modest restraint would go a long way toward rectifying the economically damaging spending binge throughout the Bush administration, during which spending has grown 7 percent a year – about twice the 3.5 percent rate under President Clinton.

Rather than fleecing taxpayers in other states for our benefit, New Mexicans should demand fiscal responsibility from their representatives.

If it takes temporary pain for that long-term gain, so be it. With Domenici’s departure from the Senate and our subsequent lack of clout – despite Sen. Jeff Bingaman being the chairman of the Energy Committee – we might not have a choice.

Gessing is president of the Rio Grande Foundation, which describes itself as “a nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.


New Mexico Has Surplus of Government Employees


Big government is a fact of life here in New Mexico. With large military installations, Indian reservations, and federal lands (42 percent of the state is federally-owned), it is perhaps not surprising that the state receives a larger proportion of federal money relative to what its citizens pay in taxes than any other state. Also, not surprisingly, a relatively high proportion of New Mexicans work for the federal government.

While there is debate over whether the tremendous federal presence is a good thing or a bad thing for New Mexico’s economic health, there is little that New Mexicans can do about it one way or another. Our history, our wide-open spaces and our weather are responsible for bringing much of this federal largesse to our state.

According to data from the Census Bureau, New Mexico’s “big government” is not limited to the federal presence here. In fact, New Mexico taxpayers are burdened with the third-largest contingent of state and local employees per capita in the nation. And, unlike their federal counterparts, the expense of New Mexico’s large state and local bureaucracies is borne entirely by New Mexico taxpayers, not federal.

According to the Census data, 6.6 percent of New Mexico’s entire population (not just workforce) is employed by a state or a local government. As a percentage of overall economic activity, New Mexico’s state and local governments are bigger than those of any other state.

The governments of Alaska and Wyoming do employ greater percentages of their populations than we do, but lest one believe that state and local employment is related to land mass, it is worth noting that Nevada governments have the smallest workforce in the nation at 4.2 percent of the state’s population.

Economists going back to at least the days of Adam Smith have noted that governments, by their very nature, are relatively ineffective tools for creating wealth (such activity is best left to entrepreneurs in the private sector). The fact that government employees must be paid by redistributing wealth away from productive uses explains, in part, why New Mexico is one of the poorest states in the country.

Of course, wealth redistribution doesn’t account for all of the negative impacts of big-government. After all, those government employees are not being paid to do nothing; they are busy taxing, regulating, and redistributing wealth. Thus, having large numbers of government employees has been associated with a degree of economic harm beyond the so-called “dead weight” loss of taxation.

With all of the problems associated with having large numbers of government employees, it should be no surprise that Nevada, with its small state and local work force, is the fastest-growing state in the nation in terms of population. Given the choice, Americans usually prefer a small government that leaves them alone to relying on big government.

If big government is a problem, then what is the solution? It is imperative that governments avoid expanding their payrolls and taking on new tasks without looking for cuts elsewhere. This can mean systemic limitations on taxes and spending along the lines of those contained in the Taxpayer Protection Act as introduced by House Minority Leader Tom Taylor, R-Farmington, and Sen. Kent Cravens, R-Albuquerque, that would force government to grow more slowly, thus creating incentives for finding alternatives to expanding government and hiring new bureaucrats.

Barring such systemic changes, government could find private-sector companies that are willing to do the same job, but for less money. Local governments in particular should consider contracting with private-sector providers for garbage and recycling services, the provision of water, public hospitals, and the construction and operation of prisons and jails. These are just a few innovative ideas that have been successfully adopted by hundreds of governments across the country. If taken here in New Mexico, they would save taxpayers or customers millions of dollars.

There are many reasons why New Mexicans continue to suffer from high poverty levels. Having a bigger government than citizens can afford is a big one. Our elected officials need to recognize the problem and start implementing these and other creative ways to cut spending and reduce the size of government.

Paul Gessing is the president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to principles of limited government, economic freedom and individual responsibility.

Economy Research Taxes

Cut Taxes and Reduce Spending to Fight Poverty?

Conventional wisdom is that bleeding-heart liberals care deeply about poverty while conservatives and libertarians would let children and the poor starve in the streets. A new study by Dr. Matthew Ladner and I that was published recently by the Rio Grande Foundation should dispel this notion and add weight to the argument that limited government is a better tool for lifting people out of poverty than bigger government.

Stepping back a bit to take in a broader world view, the case for limited government as a tool for reducing poverty has already been made on a global scale. The Cato Institute, Heritage Foundation, and a handful of other think tanks produce annual indices that clearly show the superior economic performance of nations with relatively limited governments like the United States, New Zealand, and Hong Kong when compared to the unlimited government and relatively impoverished nations of North Korea, Cuba, and Zimbabwe.

Those who support big government offer any array of excuses to justify the large gaps in living standards among free and un-free nations; our study demolishes these arguments by focusing narrowly on the relative performance of the 50 states on the issue of reducing poverty during the 1990s. Thus, it is more difficult to blame the poverty gap on cultural or resource differences.

The numbers are striking and clearly show that taxes and spending have a tremendous impact on poverty, but it is not the necessarily the impact that those who would spend ever more taxpayer money on government poverty programs will like. For starters, we wanted to explore the impact of taxation levels on poverty. So, we chose the 10 highest tax states and compared their performance over the decade to the 10 lowest-tax states. The low-tax states saw a decline in poverty rates more than 9% while poverty rates actually increased in the high tax states by approximately 2%.

Similar results were found when we looked only at childhood poverty. In the high tax states, poverty rates declined by a modest 2.8% while in the low tax states poverty rates dropped by a robust 10.3%. In a similar vein, childhood poverty in low tax states dropped by 9.26% while childhood poverty in high tax states actually rose by 3.4%.

The relative success of low-tax states in reducing poverty is somewhat unsurprising. Sure, less taxation spurs the economy, thus creating jobs and economic growth. But, what about spending? This time the authors compared the 10 states with the lowest per-capita spending during the 1990s with the top 10 states in per capita spending. In the low-spending states, overall poverty rates declined by a robust 8.42% while the big-spenders not only failed to reduce poverty rates, but they actually suffered an increase in poverty rates of 7.6%.

It is worth noting that New Mexico is among the top ten states in spending per capita and it ranks just behind Louisiana and Mississippi with one of the highest poverty levels nationwide. It is also noteworthy that Colorado led the nation in reducing childhood poverty during the 1990s while it had the fourth best record of reducing overall poverty. Colorado’s Taxpayers’ Bill of Rights was enacted in 1992 and implemented in 1993, so there can be no doubt that the law’s tax and spending reductions had a salutary impact on poverty, not the “doom-and-gloom” impact that opponents expected.

New Mexico Gov. Bill Richardson proposed (and received) an 11% budget increase for FY 2008. Not coincidentally, Republicans in New Mexico’s Legislature this year proposed a Constitutional spending limit amendment that is similar in many ways to Colorado’s. The path out of poverty is clear, but will New Mexico take it?

Mr. Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

Dr. Ladner is vice president for research at the Arizona-based Goldwater Institute and is an adjunct scholar with the Rio Grande Foundation.


Less Government, Less Poverty

New Mexico is a poor state. Most of us already know this, but what is less clear is what, if anything, can be done about it.

There are plenty of well-funded advocates for the poor – New Mexico Voices for Children is the probably the most well known – but their prescription for poverty relief often boils down to simply raising taxes to pay for more government poverty programs.

Needless to say, this policy prescription leaves many productive, tax-paying citizens with a bad taste in their mouths.

After all, nearly 30 percent of the money the average New Mexican earns is already taxed away by the federal, state or local governments.

Surely, if government programs that spent billions of dollars were the answer, we’d have the problem licked by now.

A new paper by the authors of this this column takes a close look at poverty trends here in New Mexico and nationwide and finds that lowering taxes and reducing spending, not bigger government, is the answer to poverty eradication.

For starters, Ladner and I found that the majority of the decline in poverty occurred before the advent of War on Poverty programs of the mid-1960s. In 1948, the national poverty rate was 30 percent. By 1966, the poverty rate had fallen to 15 percent. Since then, poverty rates have hovered in double-digits with the current rate residing at 12.6 percent. Clearly, the “Great Society” programs introduced in the 1960s have not done as much to lower poverty rates as the post-World War II economic boom did.

To analyze how poverty trends among the states, Ladner and I studied poverty data from the 1990s and compared the results of the top 10 and bottom 10 states in both spending per capita and in overall tax burdens.

The results will undoubtedly come as a surprise to those who think that government has the answers to reducing poverty.

Over the decade, the low-tax states saw poverty rates fall by more than 9 percent while poverty rates actually increased by approximately 2 percent in the high-tax states.

In the high-tax states, poverty rates declined by a modest 2.8 percent, while in the low-tax states, poverty rates dropped by a robust 10.3 percent.

In a similar vein, childhood poverty in low-tax states dropped by 9.26 percent, while childhood poverty in high-tax states rose by 3.4 percent.

The story was the same when we took a look at the impact of spending on poverty reduction. It is worth noting that New Mexico was one of the top ten states in spending per capita, yet it ranks just behind Louisiana and Mississippi with one of the highest poverty levels nationwide.

During the 1990s, overall poverty rates declined by a robust 8.42 percent in the lowest spending states while the big-spenders not only failed to reduce poverty rates, but they actually suffered an increase in poverty rates of 7.6 percent.

Notably, Colorado led the nation in reducing childhood poverty during the 1990s and had the fourth best record of reducing overall poverty during the decade, as well. With Colorado’s Taxpayers’ Bill of Rights having been enacted in 1992 and implemented in 1993, there can be no doubt that the law’s tax and spending reductions had a salutary impact on poverty.

New Mexico Gov. Bill Richardson has proposed an 11 percent budget increase for the next year alone. Not coincidentally, Republicans in the Legislature have proposed a constitutional amendment similar in many ways to that of Colorado.

As the data make clear, limiting spending and taxation are more effective means of reducing poverty than is bigger government.

For too long, New Mexico has relied on government spending – whether that meant federal largesse or state and local governments – but with poor results. It is time for New Mexico’s political leaders to limit government and stop tolerating high levels of poverty.

Gessing is the president of the Rio Grande Foundation, a nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility. Ladner is vice president for research at the Goldwater Institute, based in Arizona.

Economy Tax and Budget

Tesla Deal No Model for Economic Development

I was as happy as the next person when Tesla Motors announced last month that it was locating its new factory in Albuquerque. The company is planning to build electrically-powered sedans ranging in price from $50,000 to $65,000 here. If the car is successful – that’s a big “if” considering the car has not been tested by anyone outside the company – Tesla could be a boon to both the state and local economies.

The arrival of Tesla may indeed bring the jobs and economic development being promised, but it must be pointed out that this type of incentive-based “economic development” is not the best or fairest way to improve New Mexico’s economy. Tesla will receive an estimated $20 million in tax incentives. How many small business men and women work every day to grow their businesses, almost always without special tax breaks (and usually besieged by all manner of government regulations)?

The question of “fairness” may sound idealistic with special interests spending millions of dollars to get their “fair share” in Santa Fe and from the City, but our tax policies should be built on the principal of fairness. Indeed, giving special breaks to one company not only shifts the tax burden to the rest of us (including small business), but it creates incentives for companies to spend even more on unproductive activities like lobbying.

The fact that the state is considering investing permanent fund money into Tesla’s unproven electric roadster which happens to fill an “environmentally-friendly” niche makes the relationship between a private company and government a bit too cozy.

Perhaps more importantly, economic research has shown that the best way to do economic development is to keep taxes low, and to the best extent possible, levy them fairly on all businesses.

There is no way for taxpayers, or for Governor Richardson and Mayor Chavez, to know whether Tesla will be the next big thing or a bust. But, to use a baseball analogy, rather than using tax incentives to go out and sign the next “free agent,” New Mexico needs to reform its tax policies in ways that allow the state to build talent from within. This will allow New Mexico to finally become an economic powerhouse.

Paul Gessing is the president of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.