December 1, 2017

GOP tax bill could put giant hole in NM’s budget

Capitol Hill Building, Washington DC

The tax bill Congress is considering could blow up New Mexico’s budget—as early as next year.

New Mexico Senate Finance Committee chair John Arthur Smith, D-Deming, and House Appropriations and Finance Committee chair Patricia Lundstrom, D-Gallup, sounded the alarm with a letter to members of the congressional delegation and Gov. Susana Martinez.

The two wrote the state could lose nearly $600 million in federal funding in the coming year, including over $430 million in federal mineral leasing payments. This is money the federal government pays to states for oil and gas drilling and coal mining on federal lands within their borders.

“Loss of FML revenues, which primarily fund public education in New Mexico, would have a devastating impact on the state’s budget and would wipe out the reserves our state has struggled to rebuild,” the two legislators wrote.

The Senate is expected to vote on passage of the tax bill as early as tomorrow. If they pass the bill, it will head back to the House for concurrence.

On Thursday, the U.S. Department of the Interior announced it distributed $1.44 billion of the Fiscal Year 2017 energy revenues to 36 states, including New Mexico, which received $455 million. Because of impacts to the federal budget from the tax bill Congress is considering, energy-producing states might no longer receive that money.

New Mexico could also lose another $178 million next year through cuts to Medicare funding for the state.

These cuts don’t come directly from the tax bill itself. Instead, they would result from sequestration through the Obama-era Statutory Pay-as-You-Go Act of 2010, known as PAYGO. That law ensures that any bill that costs more than it saves triggers automatic “sequestration,” or cuts, to offset the costs.

The tax bill has yet to be finalized, but if it becomes law, independent estimates show it would increase the federal budget between $586 billion and $1.39 trillion over ten years—even after economic growth is included.

These estimates were before Senate Republicans were forced to alter the bill at the last minute on Thursday night.

Delegation weighs in

Sen. Tom Udall, a Democrat, opposes the bill and worries about the money the state might lose.

“These are royalties that New Mexico and the states are entitled to,” Udall said.

Other energy-producing states will also be impacted. Wyoming, for example, received $670 million in 2017 from the program. Colorado received $92 million and Utah, $74 million.

Udall also called the bill “a massive redistribution of wealth.”

“The Republicans tax bill is a disaster for the American people,” he said. “It would give the ultra-wealthy a tax cut and make middle-class families pay for it.”

Sen. Martin Heinrich, also a Democrat, called the plan a “massive tax giveaway for the wealthy” and said it would add $1.5 trillion to the national deficit.

“When tax revenues dry up because of this plan, Congress will have to make hard decisions about funding Medicare, Social Security, Medicaid, public schools, our national labs, and our military,” Heinrich said. “It is simply irresponsible that Republicans are forcing the American people to choose which investments in our country they are willing to sacrifice so the well-connected and wealthy elite can get massive tax breaks.”

Rep. Steve Pearce, the lone Republican in New Mexico’s delegation, supports the tax bill.

His office told NM Political Report that he believes the increased economic activity as a result of the tax cuts would pay for themselves and offset the costs. This means it would not trigger sequestration through PAYGO. He added he opposes a sequester and has since 2011.

“I support tax reform to spark GDP growth and regenerate the nation’s economy, while reducing the tax rate for lower- and middle-income families and small businesses,” Pearce said. “I will continue to work with my colleagues to ensure that the final tax reform bill will be beneficial for New Mexico.”

Rep. Michelle Lujan Grisham slammed the bill—and the possible automatic cuts.

“Both the Senate and House Republican tax packages are so expensive that they would irresponsibly trigger automatic spending cuts that will decimate important programs in New Mexico, including Medicare, workforce training services, investments that grow small businesses, and agricultural programs,” the Democrat said. “Congressional Republicans are pushing tax packages that would rob New Mexico’s economy of important investments, and as a result, our state would fall further and further behind.”

NM Political Report did not receive a response from Rep. Ben Ray Lujan by press time, though he has spoken against the legislation and voted against the House version of the tax bill.

Whether or not sequestration occurs, as analyses predict, is an important question for New Mexico. The near-$600 million impact would be nearly 10 percent of the state’s budget—which would wipe out what little reserves that state now has, though higher oil prices should help. The state would still receive money from drilling on state lands.

Martinez’s office didn’t respond to requests for comment about the possible impacts of the Senate bill on New Mexico’s budget.

In each of the last two years, the state legislature and governor struggled to come to an agreement on balancing the budget. The governor maintains she will not approve of any tax increases, while Democrats have sought to limit cuts to state programs.

Massive cuts

Sam Berger, of the left-leaning Center for American Progress, said the bill would result in “devastating” cuts in many programs, not just the two highlighted by Smith and Lundstrom.

“Programs that do things like prevent elder abuse, support meals on wheels, the program that supports food donations to the elderly and low-income populations, programs that deal with waste, fraud and abuse, farm subsidies would be eliminated,” Berger told NM Political Report. These were just a handful of programs he listed.

There is another way the bill would impact New Mexico: Elimination of the state and local tax (SALT) deduction. This deduction allows tax filers to deduct the taxes they pay in state and local taxes, which primarily impacts states like California and New York with higher incomes and higher amounts of progressivity in their tax structure.

A report by the Democrats on the Senate Joint Economic Committee found that would reduce school funding by $94 million.

It is possible to prevent sequestration, even if the bill expands the deficit, as experts project.

“As with any set of cuts, they can always pass a bill that would stop it from happening,” Berger said. “But the question, of course, would be ‘Where are they going to get the votes to do so and are they going choose to do so?’ You’re talking about a Congress that has already shown itself to make a lot of very odd decisions, and you’re talking about a Republican Party that has shown a lot of willingness, even excitement, to try and cut government programs including some of the larger parts of the social safety net.”

U.S. Sen. Marco Rubio, R-Florida, opened the door for big changes to Social Security and Medicare, two key safety net programs, while speaking to lobbyists and policy analysts on Wednesday.

“Many argue that you can’t cut taxes because it will drive up the deficit. But we have to do two things,” Rubio said. “We have to generate economic growth which generates revenue, while reducing spending. That will mean instituting structural changes to Social Security and Medicare for the future.”

Rubio also suggested not making changes to current retirees or those who are near retirement, “but we can make changes for future generations, such as mine, and do so in a way that people can prepare for, so the changes will barely be felt.”