October 5, 2016

Critics use same arguments against corporate tax cuts, film incentives

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Legislators on opposing sides of the aisle are using remarkably similar arguments on two bills that would delay tax breaks and subsidies to businesses to help balance New Mexico’s projected $460 million shortfall between last year and this year.

One would delay incoming corporate tax cuts for two years, saving the state an estimated $13.8 million this fiscal year, according to the Legislative Finance Committee,

The other bill would generate $20 million by cutting New Mexico’s film industry subsidy by that much this year.

While both bills bear similarities in delaying tax breaks and subsidies for businesses, they’re being both supported and opposed on nearly opposite partisan lines.

Democratic leadership in the Roundhouse argued that businesses must participate in the “shared sacrifice” of cuts to solve the state’s budget crisis when supporting the corporate tax cut delays that the Senate passed last weekend.

House Minority Leader Brian Egolf, D-Santa Fe, emphasized this point when criticizing proposed cuts to services in the Republican budget plan Monday morning in his office.

“They’re digging so deep because the refused to ask out-of-state corporations and large New Mexico corporations to wait a year to get their next tax cut,” Egolf told reporters. “That is the fundamental problem in the Republican plan.”

After narrowly passing the Democratic-controlled Senate, the corporate tax cut delay bill died in a Republican-controlled House committee earlier this week. Business interest groups opposing the bill testified that delaying previously promised tax cuts amounted to the state sending a message of unreliability to businesses.

“Predictability does matter. And it matters a great deal to business,” Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, said of the delaying corporate tax cuts.

Cole later gave the exact same argument against delaying film subsidies, even prefacing that she didn’t want to “duplicate a lot of my comments from the other night, but they certainly apply.”

“We think it’s a very bad idea to disturb in any way an industry that is working toward diversification [of New Mexico],” Cole said.

Likewise, legislative sponsors of both bills downplayed the long-term impact their bills would have on the state.

“We are not asking for a tax increase,” Rep. Bill McCamley, D-Mesilla, said of the corporate tax freeze bill over the weekend. “We are merely asking that we delay this tax.”

Rep. Rod Montoya, R-Farmington, emphasized that the state was cutting everywhere else while introducing his bill to delaying film subsidies.

“All we’re asking from the film industry is just let us take a little bit longer for the payout,” Montoya said Monday evening. “This is not a cut, it is a delay to folks who rightly qualify for distribution.”

Subsidies vs. tax cuts

Cole found an unlikely ideological ally in New Mexico Federation of Labor AFL-CIO President Jon Hendry Monday evening. Hendry is also business agent for the International Alliance of Theatrical Stage Employees Local 480, which represents film technicians.

“The message we’re sending is our word is not our bond,” Hendry said, making a similar argument of businesses favoring predictability while opposing Montoya’s bill. “The message goes back to Hollywood, the message goes back to New York, that New Mexico is unreliable.”

Hendry noted that film companies don’t usually receive the tax subsidies until two years after shooting a picture or TV show, or in his words long after they’ve already “committed to the community.”

Others note the differences in how the film subsidies and corporate tax breaks actually work.

“They’re different animals because one is a tax cut and one is an expenditure of money,” Paul Gessing, president of the libertarian Rio Grande Foundation, said.

The Rio Grande Foundation opposes the film subsidies and supports the corporate tax breaks.

“The Legislature has to maintain availability to spend $50 million every year [for the film subsidies],” Gessing said. “Whereas the corporate tax cut is a policy change that reduces the rate of foregone revenue.”

Gessing argued New Mexico spends too much on government and that there’s “plenty of money out there to cut” to handle the corporate tax breaks. But he opposes the film subsidies because they require the state paying out actual money to the industry rather than reducing the tax money companies would owe the state.

Gerry Bradley, a senior researcher and policy analyst at New Mexico Voices for Children, however, called the corporate tax breaks “a shot in the dark,” as they are not directly tied to job investment in the state.

The tax cuts, he argued, haven’t done anything to help the economy.

“They didn’t know anything was going to happen,” Bradley said of the Legislature passing the phased-in tax cuts in 2013, “and in fact nothing happened.”

New Mexico Voices for Children doesn’t take an official position on the film subsidies, though spokeswoman Sharon Kayne said “it’s pretty clear the film tax credit brings the industry to the state, which does create jobs.”

“As far as overall economic activity, we just haven’t studied that,” Kayne added.

There are also differences to how both bills would work.

The corporate tax bill simply delays tax breaks for two years. The film subsidy bill, on the other hand, still puts the state on hook for paying the reduced $20 million this year at a later year. That’s because film companies were already promised the relief, according to a Legislative Finance Committee analysis.

“In effect, the bill borrows money from future years for use,” that analysis reads.

The House Ways and Means Committee passed the film subsidies delay bill on narrow partisan lines Monday evening. That bill now goes to the full body for a vote.

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