We at the Rio Grande Foundation have been among Governor Richardson’s harshest over the years. With the Governor caught up in corruption scandals and spending gobs of taxpayer dollars on dubious “investments” in the Rail Runner, Spaceport, Eclipse Aviation, film industry giveaways, and “Solar Alley,” to name just a few, there has been much to criticize.
That said, as Richardson serves out his last few months in office, we feel that it is time to take a more holistic look at the Richardson legacy. And, while we will continue to criticize the wasteful spending and corruption, we would be remiss if we overlooked the powerful, positive, economic impact that the personal income and capital gains tax cuts of 2003 had on New Mexico’s economy.
To recap, the tax cuts of 2003 reduced New Mexico’s top personal income tax rate from 8.2% to 4.9 percent over 5 years time, for those earning more than $16,000 a year. A 50 percent cut in the state’s capital gains tax was also implemented. These plans, it should be mentioned, passed the House without a single dissenting vote and the Senate by a margin of 39 to 2. Some “fees” and other taxes were raised at that time, but the overall impact was a dramatic “pro-growth” tax cut.
Those tax cuts have led to a burst of prosperity relative to other states. Since 2003, New Mexico’s personal income growth has driven the state’s national income ranking 5 places up from a dismal 47th place, to an improved 42nd place. This is a remarkable accomplishment, especially considering the stagnation of New Mexico’s national income ranking throughout the previous decade, when it fluctuated between 48th and 46th in the nation.
According to the U.S. Dept. of Commerce, Bureau of Economic Analysis, nearly every year since 2003, New Mexico has climbed at least one step in the national income ranking, while increasing its personal income level. Such sudden upward mobility of our state’s economic status indicates a successful change in economic conditions at the state level, most likely due to a series of tax cuts starting in 2003.
Although New Mexico’s growth rate throughout the 90’s was positive, the growth rate up to 2003 was not enough to drive New Mexico upward on the national rankings of highest personal incomes. After the year 2003, we see a different story when it comes to our personal income ranking. It is important to mention that the relative fiscal restraint during the Johnson years set the stage for Richardson’s early tax-cutting and that Johnson attempted similar tax cuts only to be stymied by the Legislature.
But what does this all mean for Richardson’s legacy and New Mexico’s future? While we have seen the gross receipts tax and other taxes hiked in recent years, the Legislature needs to consider whether continuing some of Richardson’s spending initiatives is more important than continued, long-term economic growth.
Future elected leaders of the Land of Enchantment should consider ways to extend Richardson’s legacy by eliminating the state’s personal income tax in its entirety. Richard Vedder of Ohio University analyzed the data and found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. Over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
New Mexicans and their leaders must decide whether they are satisfied with being in 42nd place or if they want to do even better. Richardson’s legacy may have moved New Mexico beyond the bottom of the barrel, but that is still not very good. We can and will do better if we learn from past successes.
Justin Muehlmeyer is a Policy Analyst and 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.