Category: Taxes

The following op-ed appeared in the Las Cruces Sun-News on December 28, 2021.

Recently, Gov. Lujan Grisham posted on Facebook in support of her plan for a small .25 percentage point reduction in the State’s gross receipts tax rate, saying, “Lower taxes would enable them to grow their business and hire more people, including local adults with special needs that they focus on employing – and we’re going to make it happen.”

It sounded almost like something we at the free-market Rio Grande Foundation would write and

the Gov.’s statement is true as far as it goes. While we support ANY effort to lower tax burdens on New Mexicans, Lujan Grisham’s plan for a small .25 percentage point reduction in the State’s GRT is totally inadequate and clearly driven by her coming reelection and the fact that she faces a very tough race.

According to the Gov., her plan would cut taxes by $145 million annually. But since she took office, Lujan Grisham has signed tax hikes totaling more than $250 million annually. She also conveniently omits the fact that the oil and gas industry has created a $1.6 billion surplus, the likes of which New Mexico has never seen. Clearly given the economic trials facing average New Mexicans, we deserve much more than a tiny tax cut that fails to even make up for her past tax hikes.

The very same thing the Gov. claims about lower taxes helping people grow their businesses were said in opposition to tax hikes she signed into law in 2019 (HB 6) and 2021 (SB 317). Among the tax hikes passed in these bills were hikes in personal income, motor vehicle, hospital, and health insurance taxes. Clearly, as with gross receipts taxes, much of the burden of these tax hikes is also borne by businesses and affects their ability to hire and grow their businesses.

Worse, none of these tax hikes were necessary. The 2019 tax hikes were passed at a time of record budget surpluses alongside an 11 percent budget increase. The 2021 tax hike was a blatant revenue grab. The Democrat-controlled Legislature and Gov. Lujan Grisham were presented with an opportunity to generate millions of additional tax dollars by re-imposing (and retaining the proceeds from) a federal health insurance tax that had been repealed by the Trump Administration.

Simply allowing the federal government’s health insurance tax (imposed under ObamaCare) to go away would have had the very same positive impacts on businesses and their bottom lines as any other tax reduction, but that wasn’t an election year. This is.

Directly imposing higher taxes is only one of numerous ways in which government makes doing business harder than necessary. In her time in office Lujan Grisham signed a new medical malpractice law that doctors and other medical professionals say will cause them to close or leave. The Energy Transition Act has already begun increasing electricity costs and PNM is concerned about reliability as soon as next summer due to the closure of San Juan Generating Station.

While the Gov. is busy positioning herself as a pro-business “tax cutter” she is also pushing a new “Clean Fuel Standard” that, based on a draft of the bill, would increase gasoline prices by 35 cents per gallon. Every New Mexico business and resident (even if they drive an electric vehicle) would see further price hikes above and beyond current inflation if that bill becomes law.

Sadly, the impact of these anti-business law is to keep New Mexico poor. It is no surprise that New Mexico has one of the highest unemployment rates in the nation despite the massive oil and gas surplus.

Lujan Grisham’s management of New Mexico’s economy both before and throughout the Pandemic have been abysmal and her claim to be a pro-business “tax cutter” are laughable.

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, 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

Our friend Vance Ginn, Chief Economist at the Texas Public Policy Institute, recently compared his state of Texas and another prominent “red” state (Florida) with the biggest “blue” states of California and New York on a range of basic economic statistics.

You can see the data below which is loosely based on Ginn’s analysis linked above. The data are interesting to say the least.

New Mexico is definitely a “BLUE” state. It suffers from terrible workforce participation and unemployment rates and government consumes an outsized portion of our economy (even when compared with “blue” states).

Notably, New Mexico is also even less attractive as a moving destination than either big “blue” state. Ironically, New Mexico is the least “unequal” state as measured by the Top 10% income share and even New Mexico’s poverty rate isn’t “that” bad (compared with the other states) when the Census Bureau includes living costs and government benefits.

Notably, as it is heavily-reliant on oil and gas production and revenues, New Mexico’s economy is much more resource-driven than any of the other states studied.

The following appeared in Las Cruces Sun-News on Sunday, November 28, 2021.

For many years the Rio Grande Foundation has pushed the Legislature to take steps to address fundamental problems with the State’s gross receipts tax. We’ve regularly labeled it New Mexico’s “original sin” of economic policy due to the tremendous harm it does to New Mexico’s economy.

And, while we support ANY effort to lower tax burdens on New Mexicans, the Gov.’s plan for a small .25 percentage point reduction in the State’s GRT burden hardly makes up for recent increases. With a $2 billion budget surplus looming this January and the Senate Finance Committee Chair saying the Legislature has “more money than they know what to do with,” it is time to really reform the GRT, not provide an election year sop to struggling businesses and families.

Currently, the City of Las Cruces GRT is 8.3125%. Back in 2010 that rate was “just” 7.0%. The Gov.’s reduction, if implemented, won’t even get the rate back to 8.0%. Las Cruces is not alone. GRT rates have risen dramatically over the last 20 years due to a combination of state and local policies.

But the most important problem with the GRT is its unfair treatment of small businesses. Accountants, bookkeepers, even medical professionals, and attorneys (and many others) all must charge this tax on top of the cost of their services. Alternatively, service providers located in other states do not have to charge the GRT. This makes New Mexico especially unattractive as a location for small businesses. And it is those small businesses that grow into tomorrow’s big businesses which can employee hundreds or even thousands of workers and boost state and local economies.

With the Legislature expected to convene in January with up to $2 billion in surplus revenues generated primarily from oil and gas, now is the time to focus on fundamental reform. According to the Gov. this tax cut will reduce revenues by $145 million annually. That’s a tiny fraction of the surplus. At a bare minimum proper GRT reform needs to eliminate the taxation of these business services. It will be easier to make the change when there is plenty of revenue available.

The GRT and much-needed reforms to it are not a partisan issue. Republican Jason Harper has introduced reform legislation in recent years with former Senate Finance Committee Chair, Democrat John Arthur Smith. More recently, powerful House Appropriations Committee Chair Democrat Rep. Patty Lundstrom told attendees of the New Mexico Oil and Gas Association (NMOGA) conference in October that “tax pyramiding” needed to be addressed by the Legislature in the upcoming session.

While taxing services is the fundamental problem with the GRT, there are others. Specifically, while the tax was originally conceived as being applied at VERY low rates and broadly, the political process has led to the current, sorry state of high rate, exemption-filled tax structure.

Special interests line up in Santa Fe to lobby for exemptions and deductions for their business or industry and the Legislature is more than happy to offer those exemptions. And, whether you support taxing groceries or not, the process of eliminating that tax has directly contributed to the massive rise in GRT rates in recent years.

In addition to addressing taxes on business inputs and services, the Legislature needs to put a stop to the special exemptions while also constraining the future ability of local governments to raise rates.

A tiny tax cut passed as we head into an election year with a massive budget service may or may not be good politics, but it certainly isn’t enough to address the fundamental problems with New Mexico’s GRT.

Paul Gessing is president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, 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