No Need to Raise Taxes in New Mexico

The budget numbers are changing (for the worse) on an almost daily basis. The latest information calls for a 12% decline in General Fund revenues which means a reduction of $700-$800 million (not factoring in rainy-day funds etc).

The point remains, as I note below, that no matter how the budget gap is filled, there are some programs that should be eliminated in their entirety prior to cuts being enacted elsewhere.

Like spring follows winter, proposals to increase taxes on hard-working New Mexicans are flourishing in Santa Fe. Dozens of such proposals have been put forth, including several by Democrat Senate Finance Committee Chairman John Arthur-Smith. Gov. Martinez has repeatedly pledged NOT to raise taxes, so it is unlikely these proposals will be enacted, but what about the merits of the issue? Should taxes be raised in New Mexico?

One of Sen. Smith’s proposals that has attracted media attention is SB 281 which would re-impose the gross receipts tax on groceries. Groceries used to be taxed just like everything else bought in the store, but when he was governor, Bill Richardson decided to eliminate the tax on groceries. The broader gross receipts tax was hiked by half a cent. This all sounds simple, but was really a complex tax-shift that the Legislature has tinkered with since it was enacted.

And now, Sen. Smith wants to again tax groceries as a means of raising revenues in tight budgetary times. Taxing food is not an inherently bad idea, but it shouldn’t be done without reducing the gross receipts tax on other purchases.

That is only the start. Smith and his Democrat colleagues want to add taxes to everything from cigarettes to gasoline, to personal income, while also freezing New Mexico’s corporate income tax rate in place rather than continuing a scheduled phase-down to 5.9%.

The immediate concern for policymakers is New Mexico’s deteriorating budget picture. Due to declining oil prices, there is “only” $35 million in “new” money. Once $85 million in new costs for half-a-year of Medicaid expansion are added to the mix, everything else in New Mexico’s budget is being squeezed. Thus the calls for higher taxes.

Of course, New Mexicans are hard-pressed right now and it is shameful that politicians in Santa Fe want to increase taxes in a state with the highest unemployment rate in the nation and residents suffer from some of the highest poverty rates in the nation.

According to the Federation of Tax Administrators, New Mexicans face the 9th-highest state tax burden as a percentage of resident incomes of any state in the nation. The last thing we need is higher taxes.

New Mexico has some relatively easy solutions to its budget woes. The State spends approximately $50 million annually to subsidize film companies and the Rail Runner costs taxpayers another $25 million to operate. When times are good, these programs seem like nice things to have around, but are supporters really going to say that education, law enforcement, and behavioral health programs for the poor should be cut instead?

That’s ultimately their argument.

Of course many will come back with the “tax the rich” mantra, but New Mexico is poor. We have some rich people and some profitable businesses, but capital is mobile. They can leave our state anytime. And, as is plain to see, plenty of businesses avoid New Mexico.

We have one publicly-traded company (on a stock market) headquartered in the state (Public Service Company of New Mexico). We have seen our best-and-brightest moving to places like Texas for several years. Raising taxes isn’t going to help the cause.

It is time for tough decisions in Santa Fe. Alaska and Michigan recently eliminated their film subsidy programs. The Rail Runner is an epic money-loser even by mass transit standards. They are the fattest targets for policymakers, but there are plenty of others.

Gov. Martinez is right to avoid tax hikes. New Mexico’s economy faces enough challenges already.

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