February 1, 2019

Corporate tax cuts prevent us from investing in what really matters for a thriving economy

Courtesy Photo

Paige Knight

New Mexico has a lot to offer, and we all share in the benefits of the state’s beautiful land and clean water, roads and bridges, and public services like education, health care, and public safety. We should all share in the responsibility of paying for them, too, but we don’t. Corporations get a big pass here in the Land of Enchantment. Not only did federal reform give a huge tax break to big businesses this past year, but here in New Mexico, we’ve given away more and more of our tax revenue over time in the form of corporate handouts. We’ve also allowed multi-state corporations to play shell games with the profits they earn here. The result? Our state has less money to invest in the things that corporations really care about – modern and robust infrastructure, a well-trained workforce, a market for their goods, and a quality of life that makes people want to live here. So, hard-working New Mexicans are shouldering more of the responsibility for paying for the services that people and corporations alike depend upon in order to thrive.

Giving tax breaks to corporations makes it harder to invest in these important public services. Unfortunately, the Legislature did exactly that in 2013. That year, a bill that cut the tax rate (among other things) for big corporations passed at the very end of the session with little debate. Legislators were led to believe that any loss of revenue would be minor, but that has not been the case. The tax cuts were much more costly than anticipated, and there is little evidence they have helped our economy. HB 247 would help reverse this huge revenue loss and the Legislature should pass it.

Corporate tax cuts have been sold to the American public for decades as so-called trickle-down economic theory. But few jobs are created by tax cuts. In reality, businesses hire employees because there is a consumer demand for their goods and services, meaning they will hire a new employee if that employee is needed in order to make more money. Tax rates are an insignificant factor when making hiring decisions.

Unfortunately, fair tax rates alone are not enough to ensure corporations are paying their fair share for New Mexico’s public services. Under current New Mexico law, loopholes allow many large, multistate corporations to avoid paying income taxes on their New Mexico profits. One of the primary ways they do this is by shifting profits earned in New Mexico to subsidiaries in states that have a lower – or no – corporate income tax. Enacting mandatory combined reporting would help close these loopholes and reduce or eliminate this form of corporate tax avoidance. SB 335 would close this loophole and should be passed.

Combined reporting would also help level the playing field for our small, locally owned businesses, which can’t shift their profits out of state. Without this fix, our state will continue losing valuable revenue that could be used to invest in the education, health, and infrastructure needs of our communities. New Mexico has underfunded these investments for too long.

We need to make sure everyone – people and corporations alike – is paying their fair share to support a healthy and prosperous community. It’s time to build a stronger New Mexico and invest in what really matters and what really drives a booming economy: the well-being of our children and families. When our communities are truly thriving, what business wouldn’t want to be a part of that?

Paige Knight is a research and policy analyst with New Mexico Voices for Children.