We Need Tax Cuts, Property Protections

Mark Twain once said, “No man’s life, liberty, or property are safe while the legislature is in session.” The Rio Grande Foundation is hoping that New Mexico’s upcoming session will prove old Samuel Clemens wrong for a change by adopting a pro-freedom legislative agenda that will preserve New Mexicans’ property rights, give them more control over their hard-earned money, and at last take real action to improve the educational opportunities of the state’s poorest children.

First and foremost, this state must act now to protect private property rights from the abusive use of eminent domain. Following last year’s legislative session, Gov. Bill Richardson vetoed a compromise bill that would have protected property from transfers of one person’s property to another private entity. Unfortunately, property would have only been protected for three years after which governments could again transfer property to well-connected developers.

More recently, the governor’s eminent domain task force recommended prohibiting the use of eminent domain by local governments for economic development and placing strict limits on redevelopment based on “slum or blight.”

On Election Day, nine more states adopted restrictions on governments’ use of eminent domain. This brings the total number of states restricting eminent domain to 34. New Mexico currently has no restrictions on the use of eminent domain. Richardson’s task force recommends restoring property rights to New Mexicans; their recommendations should form the basis of strong eminent domain protections.

The second way to increase freedom in New Mexico would be to continue reducing income taxes. The final round of tax cuts is set to end in 2008 with a top rate of 4.9 percent. Further tax cuts are necessary because even after the last round of cuts is phased in, New Mexicans will be paying higher taxes on productive economic activity than do residents of neighboring states.

Texans pay no income tax at all, for example, while Coloradoans pay taxes at a lower rate than do New Mexicans. Arizona and Oklahoma passed tax cuts earlier this year.

Unfortunately, even when New Mexicans pay at a lower rate than their neighbors in Oklahoma— where the top tax rate is higher than it is here— our gross receipts tax stifles the development of small businesses with rates up to and in excess of 7 percent. Since the gross receipts tax is applied to many inputs and is based on overall receipts as opposed to transactions, it is far more harmful to our economy than are the sales taxes levied in other states.

With the state expecting a $720 million windfall according to recent reports and the governor talking about tax cuts, albeit narrowly targeted, legislators need to seriously consider further reductions as a means of increasing our regional tax competitiveness.

The last major pro-freedom agenda item for the upcoming legislative session should be a system of tax credits for students from low-income families.

Unlike vouchers, which take money out of government schools and transfer it to private schools, a system of tax credits can expand the education funding pie by allowing individuals and/or businesses, depending on the legislation, to donate money to a scholarship organization for needy children while taking a tax credit of up to 100 percent of the deduction.

The size of the program would be set by the Legislature, as would the specifics of how the scholarships are to be awarded to needy families. Arizona, Minnesota, Iowa, Pennsylvania, Florida, Rhode Island and Illinois have adopted similar programs, often with the support of Democratic governors (Napolitano of Arizona, Vilsack of Iowa, and Rendell of Pennsylvania being among the most prominent).

New Mexico has tried dozens of educational reforms over the years, with limited success. A robust system of tax credits would provide an essential element of educational choice for those low-income students for whom such choices are now merely a dream.

None of these proposals can be considered radical in nature. In fact, each proposal is a basic attempt to help New Mexicans attain the same protections and freedoms enjoyed by the residents of dozens of states nationwide. Adopting each of these ideas will make New Mexico a better state.

The Rio Grande Foundation is dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.