Democratic lawmakers proposed a new overhaul of the state’s tax code on Monday, offering a revamped version of a bill filed earlier in the session and roundly criticized.
Rep. Jim Trujillo, D-Santa Fe, who chairs the House Taxation and Revenue Committee, said House Bill 6 had since been “changed substantially.”
Perhaps most notably for the average taxpayer, the 131-page bill adds brackets to the state’s personal income tax.
The state currently levies a 4.9 percent income tax on families filing jointly and earning more than $24,000 a year. And at the moment, that is as high as the state’s personal income tax goes.
House Bill 6 would add several other levels. For example, a couple earning between $35,000 and $75,000 a year would pay 5.2 percent. Couples earning more than $300,000 a year would pay the new top tax rate of 6.5 percent.
Moreover, the bill would repeal part of the capital gains deduction.
But the bill would also double the Working Families Tax Credit. It would also extend state and local gross receipts taxes to goods purchased online, increase the tax on cigarettes and tobacco products, tax e-cigarettes and increase the motor vehicle excise tax.
Democrats argue that despite the state’s budget surplus, some sort of big change to the state’s tax law is key to avoid the ups and downs in the state’s finances that have come with New Mexico’s heavy reliance on oil and gas revenue. If New Mexico is going to avoid rounds of budget cuts in the future, the state has to find other sources of revenue it can rely on when the oil markets decline again, Trujillo argued.
“The purposes are still the same,” he said of the retooled bill. “To stabilize revenue and raise recurring revenue to help the state weather downturns in the oil and gas sectors.”
Legislative aides estimated the bill would raise $286 million for the state’s general fund in the next fiscal year and another $37 million for state and local roads.
Republicans cautioned that changes in the personal income tax brackets in particular could punish families that get a pay raise.
“What I’d like to see is a way we can have a gradual way if a family gets a good job and a pay rise they don’t all of a sudden fall of a cliff,” Rep. Jason Harper, R-Rio Rancho, told the House Taxation and Revenue Committee.
The committee will discuss whether to make even more changes to the bill on Wednesday.