Categories
ART Tax and Budget Taxes

Forever Is Too Long for City Transit Tax

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Robert P. Robeda of Keep Albuquerque Moving argued recently on these pages that extending the quarter-cent transportation tax this November is a “must” for the city. In his article, he rebuts a series of arguments supposedly put forth by opponents of the tax.

While it would be hard to quibble with the fact that increased spending on transportation has not improved mobility in Albuquerque, Mr. Robeda does not mention any tradeoffs associated with voter approval of the tax extension or potential issues with the tax that voters might want to consider first.

There are indeed tradeoffs. First and foremost, Robeda makes the simplistic argument that “the quarter-cent Transportation Program costs 25 cents on every $100 dollar purchase.” This would be the case if Albuquerque and the state of New Mexico charged a simple sales tax rate, but our gross receipts tax is not at all like a sales tax.

Unlike Texas’ sales tax, for example, New Mexico’s gross receipts tax covers everything (including services). And unlike nearly all other states, New Mexico also taxes business-to-business transactions. The overall effect is somewhat hidden because taxes are charged on top of taxes in a process called “tax pyramiding.” The fact is that a quarter-cent tax is more than just a tax hike of 25 cents on a $100 purchase.

Regardless of the aforementioned point, it is estimated that the quarter-cent tax will increase local tax collections by $35 million annually. Unlike the previously-passed 1/4 cent tax, if approved by voters, this tax would be permanent. Voters should wonder why they are not being asked for just another 10-year extension since the previous tax supposedly worked so well. Making this tax permanent takes taxpayers out of the picture, a convenient solution for politicians but a foolish move for taxpayers.

Another issue with this particular tax hike is that it over-invests in transit and bike trails at the expense of roads and road maintenance. A total of 41 percent of the money collected under this tax will be allocated to transit or bikes. Though the vast majority of people do not and will never get around town on buses and bikes, the funding structure contained in the ballot measure language will enshrine these lopsided percentages into law permanently, thus leading to relative over-investment in those modes.

Regardless of exactly how these additional resources are allocated, it should be noted that local taxpayers are already paying higher taxes to fund a variety of transit projects. As of this past July, the gross receipts tax rate rose 1/8 cent to pay for the Rail Runner and a variety of bus services that feed passengers to it. Additional spending on any good or service — no matter how important it may be — inevitably results in diminishing returns. The Rail Runner, with its increasing operating deficits, may be at that point already.

When voters head to the polls over the next few weeks, they must ask themselves not just whether they want to see transportation improved. We all want more and better in a world of limited resources. Instead, voters should ask themselves whether additional transportation spending is the single best use of $35 million annually. Or, might we be better off leaving $35 million in the hands of taxpayers and small businesspeople who are dealing with one of the worst economic downturns in modern history?

Even if our transportation network suffers, as Mr. Robeda says it will, without the $35 million, the nice thing about a democracy is that voters and their elected officials can always come back at a later date. But if we make the transit tax increase permanent, we will be forever stuck with a bad decision.

Paul Gessing is president of the Rio Grande Foundation, 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.

Categories
Tax and Budget Taxes

Raising Taxes Not Good Now

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There is no doubt about it: the economy has become the central organizing theme of the 2008 election. While the importance of taxes and overall tax burdens on the economy is widely recognized by economists, taxes and the tax hikes on the November ballot have not risen to the level of the presidential or U.S. Senate race in the minds of New Mexico voters.

Of course, that doesn’t mean that taxes won’t be going up this January. In fact, despite a volatile stock market and a stagnant economy, voters are being asked to approve a total of $223 million in bond measures – listed on your ballots as Bond Issues A through B. If all of them are approved, property taxes will rise by $35.00 for a house worth $200,000 (about $18.06 per $100,000 in assessed value). That may not sound like much on its face, but it represents a real increase over New Mexicans’ existing tax burdens.

At a time when the nest eggs of many seniors have lost a great deal of value and dropping home values, the increased burden may be difficult to bear for some, especially seniors on fixed incomes and those already struggling to make ends meet. Of course, it goes without saying (although it is important to remind people of this from time to time) that money that is taxed away to pay for these projects could otherwise be socked away by New Mexico families for future expenses or be spent to pay down debt.

Certainly, hospitals, schools, and libraries are important services provided for by the government, but Americans’ got into this current crisis, in part, by spending more than we could afford. Perhaps it is time to set priorities and be more realistic about what we spend. It might make sense if voters turned down some or all of these measures which, if voters were to deny the institutions this additional funding, would continue their work albeit without the new buildings and additional resources requested. After all, when they are cutting back at home, does it really make sense to raise taxes to pay for what can only be described services that are beyond the very basics (police, roads, and courts) usually provided by government?

We at the Rio Grande Foundation always encourage voters to be skeptical any time government asks you to dig deeper into your pockets, but it would be great if each ballot measure contained a brief explanation of what a “yes” vote on each measure would mean financially for taxpayers’. After all, while smart voters intuitively understand that government does nothing without first diverting money from other areas of the economy, many voters are ignorant of basic economics and will vote “yes” under the misguided impression that they are getting something for nothing.

Rather than relying on voters to educate themselves about the property tax hikes they will incur – these costs will be passed on even if the voter happens to rent – those who write ballot measure descriptions would better serve voters by explaining that a “yes” vote will result in higher taxes.

While advocates for each bond measure from the education, health care, and senior center groups undoubtedly believe sincerely that these tax hikes are absolutely necessary, voters, particularly those who have seen budgets stretched tighter than ever before, might want to put off tax hikes until the economy rebounds. That would be right in line with the newfound trend now sweeping America called “fiscal restraint.”

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.

Categories
RailRunner Tax and Budget Taxes

The Issue is Higher Taxes, Not The Rail Runner

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If you haven’t traveled between Santa Fe and Albuquerque recently along I-25, you may not be aware that the Rail Runner – Governor Richardson’s commuter rail train from Santa Fe through Albuquerque to Belen – is progressing rapidly. Tracks are being laid in hopes of having the full system in service by January.

Despite the fact that the Rail Runner is clearly on its way to completion, voters in Bernalillo, Sandoval, Valencia, Santa Fe, Los Alamos, Rio Arriba and Taos counties are being asked to approve a one-eight cent increase in the gross receipts tax. If a majority of voters approve the hikes, taxpayers throughout the region will be on the hook for an additional $27 million annually. If passed, this tax hike would push Santa Fe’s gross receipts tax rate to over 8 percent.

Let’s make one thing clear: this vote is not about the Rail Runner. The question that voters in these areas must ask themselves is whether they like paying higher taxes or not. If this tax hike fails, the Rail Runner will still be completed. The trains will run whether voters approve higher taxes or not. Why would voters approve a tax increase simply to give the bureaucrats more money?

If you simply want to pay higher taxes, then by all means vote “yes” on the Rio Central tax hike in November. If you think taxes are high enough already, then vote “no.”

Although the vote is really about higher taxes, not the Rail Runner or new services, it is true that the Rail Runner’s operating costs, which are expected to rise to $20 million, are not expected to eat up all of the money raised by this tax hike. The rest is supposed to be used for expanded mass transit. But, little is known about how this money will actually be used and what specific transit needs must be met. The real issue in this election is the Rail Runner since it is the first time voters will have a chance to vote on the issue.

So, should voters support higher taxes as a symbol of support for the Rail Runner? We already know that the train is costing taxpayers $400 million to construct and $20 million to operate. Clearly, from a profit and loss perspective, the Rail Runner is not justifiable.

Of course, we are constantly told that transit projects like the Rail Runner are not supposed to make a profit. Proponents of mass transit offer no specifics or guidelines on limiting the amount of taxpayer resources that should be expected to divert to transit.

Fortunately, because people still have a choice about how to get from point A to point B, we do have real-world data on the relative effectiveness of transit as compared to other modes of transportation. The fact is that according to the U.S. Department of Transportation, transit’s nationwide market share of all travel fell from 1.5% in 1980 to 1.0% in 2005. Even with recent gas price induced increases in transit usage, the overall market share filled by projects like the Rail Runner is pathetically small.

Lest transit advocates argue that transit’s paltry market share is caused by under-funding, under federal law 20 percent of the federal highway trust fund must be spent on public transit – an amount that is far out of proportion to its market share. Clearly, transit is not suffering from inadequate funding.

Despite the fact that transit receives far more money than its market share would otherwise dictate, New Mexico failed to obtain federal funding for the Rail Runner. That’s because the Rail Runner runs through relatively sparsely populated areas with congestion problems that are trivial compared to areas like New York or Washington, DC. The federal government has allocated to projects in those areas instead.

Even with recent, high gas prices having induced “historic” increases in transit usage the overall market share filled by projects like the Rail Runner is pathetically small. This is not likely to change unless regional population densities increase dramatically.

The public should have been given a chance to vote on this project before it was well on its way to completion, but that is not the case and the Rail Runner is not going away.

Unless you simply like having the state take more of your money, I encourage you to oppose this unnecessary tax hike.

Gary Miller is a Policy Analyst with 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.

Categories
Spaceport Tax and Budget Taxes

Residents Should Think Twice on Spaceport Tax

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New Mexico’s political establishment has invested a lot of political capital in the proposed spaceport. Gov. Bill Richardson even visited Alamogordo recently to lend his support for the one-eighth cent hike in the county’s gross receipts tax.

But while politicians only want you to see the new spaceport, they are downplaying the real risk that the project will be a costly failure, not to mention the economic costs of further increasing gross receipts tax rates.

Residents of Otero County and throughout southern New Mexico have to wonder if their tax money will be wasted. After all, New Mexico’s spaceport will be competing to serve a market for private space travel that doesn’t even exist yet. Most voters are undoubtedly not aware, for example, that there are already three dozen operational spaceports worldwide.

Far from being a sure-fire investment, the spaceport will be just another example of politicians spending your tax money and taking credit for success or disassociating themselves with a failure. Is this really the kind of investment Otero County citizens should be making at a time of tremendous economic uncertainty?

The spaceport and other recent initiatives to increase government funding for corporate welfare under the code words “economic development” are counterproductive. They are the result of what economists call “concentrated benefits and widely dispersed costs.”

Those who receive the concentrated benefits are clearly defined, and they are grateful when politicians show up for ribbon cutting ceremonies and take credit. But those who pay in terms of lost business opportunities, jobs and wages are unseen and unheard, since the effects on them are individually imperceptible. Unfortunately, each time the gross receipts tax rate ratchets up just a little bit to support these boondoggles, the widespread losses outweigh the concentrated benefits.

For many taxpayers, a quarter percentage point increase in the gross receipts tax may seem very reasonable at first glance, even if the spaceport’s success is not guaranteed, but the unique issues associated with New Mexico’s gross receipts tax mean that increasing it should never be undertaken lightly.

Take a hypothetical entrepreneur whose costs are 50 percent of her total receipts. Alamogordo currently levies its gross receipts tax at 7.5 percent on her. A quarter percentage point increase will raise her rate to 7.625 percent. This may still seem comfortably lower than El Paso’s sales tax rate of 8.25 percent, but in reality the current gross receipts tax rate even before a potential spaceport tax hike makes the tax burden some 75 percent higher for a service-producing entrepreneur in New Mexico than it is in Texas.

To make matters worse, the business-to-business application of the tax can add another eight percent to New Mexico’s tax burden relative to Texas. For entrepreneurs whose costs are greater than 50 percent of receipts the burden is even higher.

What makes New Mexico’s gross receipts tax so burdensome?

Simply put, New Mexico’s gross receipts tax is not at all like a sales tax. Unlike Texas sales tax, for example, New Mexico’s gross receipts tax covers everything, including services. Only a few politically favored industries are exempted in the Land of Enchantment. Unlike most other states, New Mexico also taxes business-to-business transactions; Texas only taxes final consumption goods. The entire proceeds of each transaction are taxed in New Mexico. Some relief for New Mexico’s goods producing industries comes in the form of a deduction for the cost of raw materials.

So, what is the extra burden of this seemingly small increase (one-quarter of one percent) in the gross receipts tax rate for Otero County? Instead of a business tax burden on services that is some 75 percent higher than Texas in the example above, the burden would rise to 81 percent higher. Thus we see that small changes in the gross receipts tax rate can make a big difference.

Rather than spending millions of taxpayer dollars on a costly spaceport that may never provide a return on investment, isn’t it time we lowered the gross receipts rate to attract businesses and jobs the old-fashioned way?

Paul Gessing is 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.

Categories
Tax and Budget Taxes

Carlsbad Tax Hike Could be Avoided

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A year ago, I visited Carlsbad to present Mayor Bob Forrest and the City of Carlsbad with a reward for having the lowest overall tax burden in New Mexico. Soon, voters in the City will face a ballot measure asking them whether or not to increase their gross receipts tax from 6.8125 percent to 7.3125 percent.

Such a dramatic tax hike would certainly have a negative impact on the City’s relative tax friendliness, but more importantly the tax hikes are not necessary.

The City expects to raise approximately $45 million from the tax hikes with the money to be allocated for a several water-related projects around town. Carlsbad is not alone in struggling with the expense of maintaining its water system. According to the U.S. Conference of Mayors, capital expenditures on water and wastewater services are the largest issues facing local governments today.

Perhaps, with the City’s water system in such dire need of repair, voters, by saying “no” to this tax increase, could force Carlsbad’s political establishment to consider privatization?

According to the Reason Foundation, a free market think tank dedicated to infrastructure issues, privatizing of metropolitan water systems presents a great opportunity for cost savings. Through privatization, water companies can take advantage of advanced technology, more flexible management practices, and streamlined procurement and construction practices to lower costs and make the critical improvements more quickly.

Water privatization is a growing trend. According to the EPA, more than 40 percent of drinking water systems nationwide are private, regulated utility systems. Of the others that are publicly owned, a 1997 International City/County Managers Association (ICMA) survey found that 5.7 percent of the responding cities privatize water distribution and 3.7 percent contract water treatment.

According to the EPA, there are 280 small-to mid-size (1 to 10 million gallons per day) facilities and 40 large facilities of more than 10 million gallons per day now contracting with private partners for wastewater operations. In the ICMA survey, 6.2 percent of responding cities have privatized wastewater collection and treatment.

Why are so many communities privatizing their water systems? The simple truth is that it works. Cities across the nation that would otherwise have been forced to burden their taxpayers with more taxes; instead experienced efficiency improvements and customers received better service.

Across the country privately provided water saves customers an average of 25 percent over government-operated water. Inefficiencies of government-owned water companies go beyond cost to consumers. Their operating expenses per connection are 21 percent higher and the public utilities required more than double the number of employees per connection. Accordingly, salaries of public water companies ate up almost three times as much of the operating revenue as the private companies. Public companies also spent nearly double their private counterparts on maintenance.

While water privatization has traditionally focused on construction and operations, we’re starting to see private sector companies coming to the table with financing as well. Over $100 billion has been raised in the global capital markets to invest in infrastructure assets like roads, ports, and water systems. In Pima County, Arizona, officials are currently pursuing a $300 million upgrade of the county’s 50-year-old sewage treatment system using private financing. Prescott-area officials are currently exploring private financing to build a state-of-the-art, multi-jurisdictional water transmission system.

The truth is that politicians – even in relatively taxpayer-friendly cities like Carlsbad – will often choose the path of least resistance (higher taxes) over more fundamental and ultimately better reforms that use free market principles to reduce costs. After all, though privatization has been used across the nation to improve service and cut costs, it is “new” to Carlsbad.

Fortunately, Carlsbad taxpayers have a say in this issue at the ballot box. Rather than blindly going along with a big tax hike that will ultimately harm Carlsbad’s economic competitiveness, voters should demand that their elected officials carefully consider options like privatization.

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.

Categories
Health Care Taxes

Return surplus to taxpayers, abandon health care boondoggle

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After a great deal of back and forth, it looks like Governor Richardson will call legislators back to Santa Fe after all.

Fortunately, while the Governor had previously stated that health care would be the only topic of discussion during a special session, his stance has softened a bit. Recently he recognized that his plan faces political headwinds saying, “I may not get everything I want” on health care. Clearly, both the public and the Senate remain unconvinced of the Governor’s plan.

Rather than calling the Legislature back to Santa Fe for what would likely be a fruitless special session on health care, Richardson has proposed a to use a portion of the state’s $400 million in “new money” that is available as a result of strong oil and gas revenues. So, what does the Governor’s cleverly-named “CARE” package have in store?

First and foremost, New Mexico families would receive an income tax rebate from the state of between $150 and $75. Those with family incomes below $60,000 and no children would receive $150 while families making more than $70,000 would receive $75. Having children would result in additional refunds with lower income taxpayers receiving more than higher earners.

Instead of returning money to those who earned it (an optimal result), Richardson’s rebate plan re-directs money from high income families to those with lower incomes. At the same time, Richardson should be commended for proposing to refund money to New Mexicans even if it would be fairer if tax rebates were based on taxes paid or were “one-size-fits-all” rebate.

Also, while it is too much to do in a special session, it would be great to dedicate at least some time to studying the possibility of permanent tax cuts, possibly in the income tax. The Rio Grande Foundation outlined such a plan in our study “Stimulating New Mexico’s Economy by Phasing out its Personal Income Tax.” Unlike fleeting rebates, such a plan would give New Mexico’s economy a long-term boost.

Nonetheless, it is still better than more spending.

In addition to rebates, the Governor’s plan includes a one-time tax holiday for the Holidays. The tax holiday would start November 28, 2008 and run through December 7, 2008.

Just like the current back-to-school holiday, clothing, school supplies and computers could be purchased without taxes. In addition, the tax holiday for the Holidays would include Energy Star certified appliances.

Richardson would also expand both the time and the value of items that can be purchased tax-free during the back-to-school tax holiday, not for this year’s “Back to School” but in 2009.

While economists generally see one-time rebates and tax holidays as ineffective economic policy, they are superior to new government programs. Thus, both the rebate and tax holiday plans will not harm our economy.

Unfortunately, Richardson’s plan contains $20 million in new, permanent spending and this, if the Legislature approves of it, could do long-term economic harm.

The Governor would increase the working families’ tax credit by 25 percent and expand income eligibility for child care assistance from 165% to 200% of the federal poverty level. Also, the Governor is proposing a $4 million state supplement to the Low-Income Home Energy Assistance Program (LIHEAP) and an additional $2 million for weatherization assistance and $2 million for high-efficiency appliances for low-income New Mexicans.

It is unclear why the Governor would use temporary “new” money to fund permanent spending hikes. Regardless of the supposed merits of these programs, in today’s uncertain economy, significant new government spending programs – on top of major increases throughout Richardson’s term – could put New Mexico in a difficult position, particularly if oil and gas prices fall.

Hopefully, during the upcoming special session, the Legislature will have time to focus on improving the Governor’s CARE package by making the rebate portion more equitable and eliminating permanent spending. Health care reform and permanent tax cuts should be addressed during a full legislative session.

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.

Categories
Tax and Budget Taxes

Tax Hike, Unwise, Unnecessary

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The local politicians are at it again. If Mayor David Coss and Chief of Police Eric Johnson have their way, property taxes will rise and red light cameras will be introduced to Santa Fe roads for the explicit purpose of generating revenue. Both sources of increased revenue are necessary, according to Coss, to add 15 extra officers and three support staff positions for the fiscal year that begins July 1. The cost is estimated at $1.8 million.

The efficacy of such a system is still debatable. Using the system as a cash machine first to justify public safety spending is truly disturbing. No reasonable person would argue against more patrol staff but tax hikes are totally unnecessary. Coss talked about trimming the general fund budget but if public safety is the first priority then existing tax revenue should be enough.

Santa Fe’s trend to spend has been quite prominent in recent years. According to data that is readily available on the City’s website, Santa Fe spent just under $200 million during the 2003-2004 fiscal year. By the 2007-2008 fiscal year spending had grown to nearly $300 million.

Thus, Santa Fe government grew by nearly 50 percent in five years or just under 10 percent annually. Considering that inflation and the City’s population grew far more slowly (an average of 4.5 percent annually over the same four-year period), there is no question that Santa Fe’s government has grown rapidly during the last five years alone.

What does this all mean? For starters, it means that if public safety has become a higher priority, then by definition other areas are somewhat lower priorities. Santa Fe’s budget has grown by more than enough to pay for the added police officers without compromising other areas of the budget.

Certainly, police can be funded out of the existing budget if our political leaders are willing to prioritize. At the same time, the decision of whether to adopt a red light camera program should be based on the support of Santa Feans and hard data showing that they reduce accidents, not the supposed need to boost “tax” revenue.

Albuquerque’s red light program has been repeatedly threatened with closure due to a lack of popular support and the state’s decision to take some of the revenue. A similar plan should not be undertaken here unless community support is strong and revenue is an afterthought and not a justification for the program.

While support for restrained budgets may sound out of place in the “City Different,” we too must compete for businesses and residents against other cities not only throughout New Mexico, but nationwide. In fact, Albuquerque is attempting to become more business friendly by reducing its tax burden after years of tax hikes.

While Santa Fe’s budget has grown at nearly 10 percent annually in recent years, Albuquerque’s budget has grown by less than 5.5 percent over the same time period, despite faster population growth. While we don’t necessarily want to emulate Albuquerque, the fact is that its relatively restrained budget will enable that city to reduce their gross receipts tax by 1/8th cent. The hiring of more police at higher salaries is part of the plan.

Santa Fe is a unique city, but it is not immune from budgetary and economic reality. Rather than once again raising taxes, we must reconsider the core functions of government and allocate resources accordingly.

Gary Miller, a resident of Santa Fe, is a policy analyst with 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.

Categories
Economy Tax and Budget Taxes

Stimulate New Mexico Economy by Phasing Out Income Tax

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With economic growth at a standstill nationwide and long-term help from Washington unlikely, New Mexico’s political leaders should consider ways to stimulate economic growth in the Land of Enchantment. The problem is compounded because Congress’s poor excuse for a stimulus will do nothing for the state or national economy. New Mexico should instead consider stimulus that includes both short and long-term, positive policy changes.

The problem with the “stimulus” enacted by Washington is that entrepreneurs and families make their decisions based on future expectations, not just how much money they have in their pockets at a given moment. This means that the basic factors upon which New Mexicans (and other Americans) make their daily economic decisions remain unchanged. The “stimulus” is doomed to failure.

But this does not mean that policymakers are powerless to boost the economy. A new Rio Grande Foundation study, “Stimulating New Mexico’s Economy by Phasing out its Personal Income Tax,” provides a simple plan which would stimulate New Mexico’s economy by building on the state’s recent success in cutting taxes.

Six years have passed and New Mexicans may not remember it, but the state’s top personal income tax rate was 8.2 percent back in 2002. Gary Johnson had attempted to cut this high rate, but Governor Richardson did in fact manage to gradually reduce rates to the point that the top income tax rate is 4.9 percent this year. Not coincidentally, recently-released data from the Bureau of Business & Economic Research at the University of New Mexico show that since these rate cuts began, New Mexico’s income levels have improved from 47th in the nation to 43rd.

A jump of four places may not seem like a great leap forward, but considering that the state’s ranking had held steady at 46th or 47th in the nation since at least 1990, it is a huge improvement in New Mexico’s ranking. It is also a good sign that cutting income taxes can have a dramatic, positive impact on economic growth.

Continuing the success of these tax cuts is the essence of the Foundation’s proposed economic stimulus. Using data based on the economic impact of these recently-completed tax cuts and based on historic revenue growth rate of 6 percent, New Mexico could do away with its personal income tax after four years. This could be done if policymakers in Santa Fe simply restrained annual General Fund spending growth to 4.5 percent for the next four years.

Annual budget growth of 4.5 percent is relatively slow, especially when compared with New Mexico’s 8.4 percent rate of spending growth over the last four years. Nonetheless, it is still possible. In fact, Albuquerque’s annual budget (to use just one example) has grown at just 4.35 percent in recent years. Obviously, restraining spending to 4.5 percent annually for a mere four years in an effort to eliminate the income tax is feasible.

Why would New Mexico wish to eliminate the income tax? Nine states in the nation lack personal income taxes. Not surprisingly, the average resident in each of those states is wealthier than the average New Mexican. In fact, the average resident of a non-income tax state made $7,000 more than the average New Mexican in 2007. What would you do with $7,000 ever year?

Cutting income tax rates, especially if the ultimate plan is to eliminate the tax entirely, will help New Mexico’s economy immediately. After all, particularly in times of weak economic growth, entrepreneurs and employers of highly-skilled workers are looking for ways to cut costs. Taxes are one cost that businesses and workers alike work hard to avoid.

Voters should always be careful when politicians talk of government policies stimulating economic growth. Fortunately, eliminating New Mexico’s personal income tax returns resources to productive uses, thus allowing each of us to stimulate the economy more effectively than any other decision made in Santa Fe (or Washington) possibly could.

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.

Categories
Tax and Budget Taxes

Heather Wilson, Tax-and-Spend Republican

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Heather Wilson, a recently declared candidate to replace retiring Sen. Pete Domenici, is a so-called “moderate Republican.” Unfortunately, judging by her track record and the most recent congressional ratings from the National Taxpayers Union, outside of a few Northeast Republicans (Chris Shays, Sherwood Boehlert), Wilson is the most liberal Republican in the House of Representatives.

And if she winds up in the Senate, she may top Maine’s Olympia Snowe and Susan Collins in the Republicans-who-vote-liberal category.

Wilson has shown recently that she is no longer content to merely vote as a liberal. Instead, she is going to lead other moderate Republicans against their own president’s attempts to restrain federal spending. Her role in pushing for an override of President Bush’s S-CHIP veto is a case in point.

Wilson was one of 17 Republican House members to send a letter to House Speaker Nancy Pelosi, a California Democrat, asking her to allow a vote on the Senate version of the S-CHIP bill. She then proceeded to lobby her fellow Republican colleagues on behalf of the $35 billion tax-and-spending increase.

The proposal that passed both Houses, which undoubtedly will be resurrected with a number of tweaks designed to attract additional moderate Republicans, extends eligibility to children from families with incomes that are two-to-three times the federal poverty level. That makes children in families of four with incomes between $40,000 and $60,000 eligible for S-CHIP.

Since the median income for a family of four in New Mexico is about $51,000, this expansion will land directly on middle-class New Mexico families. Although the state’s income levels are among the lowest in the nation, large numbers of middle-class families in other states also would qualify for the expanded S-CHIP program that Wilson supports.

Most of the children in these families, however, are already covered by private health insurance. This expansion therefore invites the parents of these children to drop their private insurance and shift that cost to the taxpayers. While it is uncertain exactly how much private insurance the expansion of public coverage will crowd out, the Congressional Budget Office projects that if the program is expanded, 25 to 50 percent of new S-CHIP participants would be children who already had private insurance.

Families with incomes that are two-to-three times the federal poverty level manage to buy their own housing, food, and transportation, and most buy health insurance for their children. But the S-CHIP expansion replaces such personal responsibility with a $35 billion taxpayer subsidy.

That $35 billion cost is even an understatement. While the CBO scores its $35 billion S-CHIP expansion, paid for with a 61-cent-a-pack increase in federal tobacco taxes, as revenue-neutral over five years, the legislation Wilson and her Democratic allies had supported uses a transparent budget gimmick — an absurd “cliff” in the funding level — to make the legislation look fiscally sound past the five-year mark. This is both fiscally and morally irresponsible.

So why is Heather Wilson — R., N.M. — supporting this exceedingly liberal measure and working to override the president’s veto?

Some would argue that since Wilson won re-election by a mere 500 votes (over former attorney general Patty Madrid) that she has to be allowed her “independence.” That may be true, but it is equally true that when Republicans advocate bigger government and tax hikes, they hurt themselves politically.

Rep. Wilson ran for office and won as Pete Domenici’s protégé. She may shift rightward in the Senate, but her track record is that of a big-government Republican.
Paul Gessing is president of the Rio Grande Foundation.

Categories
Tax and Budget Taxes

Congress to Resurrect Harmful Tax Hikes

There are two major proposed tax hikes that will be considered in Congress when it returns to Washington to resume debate on an energy bill. If enacted, these tax hikes would have a major negative impact on American and New Mexican consumers — and on our state economy.

Although most Americans justifiably are wary of raising taxes, these proposals have been packaged so as to produce the most feel-good sound bites. That said, even the simplistic sound bites defending these taxes have scarcely been necessary in New Mexico, so far, since they have received little attention here. This, despite the fact that these taxes — which would be levied on the nation’s oil and gas producers — would disproportionately affect New Mexico’s economy.

One of the proposed tax amendments would eliminate the foreign income tax credit for U.S. companies. This may sound like a small issue, but if this amendment is enacted, U.S. companies would have to pay double taxes on the oil they produce outside the United States.

Currently, U.S. companies drilling elsewhere pay taxes in the country in which they operate and get a credit for that on their U.S. income taxes, so they do not have to pay double. For whatever reason, a sizable number of senators, and the pro-tax interest groups, want to end this reasonable exemption.

Passing this amendment would mean that American companies would be placed at a competitive disadvantage when operating in foreign countries. It is hard to believe that at a time when “energy security” is such a hot topic that we would be passing laws to benefit foreign oil companies at the expense of U.S.-based producers.

The other proposal would increase by $30 billion the tax on companies operating in the Gulf of Mexico, and virtually all of the Gulf operators are U.S. energy companies. This is big money even by Washington standards. The proponents of this $30 billion tax want to redistribute it in the form of subsidies to “renewable” energy companies.

Even if one were to advocate for renewable energy, it is foolhardy and improper to have the U.S. taxpayers serve as venture capitalists via the tax code for unproven technologies.

Although each of these tax hike proposals was beaten back in votes on the Senate floor earlier this summer, they are almost certain to be brought back up again when Congress returns from its current August recess. Pro-tax advocates are now going public with misleading ad campaigns.

New Mexico remains a leading producer of oil and gas in the entire nation. Few New Mexicans know that about half of our General Fund budget comes from taxes on our oil and gas companies. That lack of understanding is probably based on the fact that the majority of the New Mexico population lives along the central corridor of the state while the energy areas are 200 miles away or more in the southeast and northwest.

Despite our relative ignorance, New Mexicans must become engaged. After all, our senators, Jeff Bingaman and Pete Domenici, hold the two most powerful posts on energy policy in the Senate. Although often in agreement, they have differed on these proposed taxes in the votes that happened this summer, with Bingaman voting for the tax hikes and Domenici voting against them.

New Mexicans should inform themselves about these measures, and the impact they will have on our country and our state and all consumers. It is almost a certainty that these taxes will be offered again, and the pro-tax interest groups are pressuring senators, who have opposed the taxes so far, to vote for these ill-considered measures.

Paul Gessing, of Albuquerque, 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.