March 13, 2019

Senator wants to rein in tax hike proposals

The chairman of an influential Senate committee proposes to strip out big pieces of a sprawling tax bill, scrapping a proposed increase in New Mexico’s personal income tax rates and scaling back a suggested increase in a credit for families.

For backers of House Bill 6, the measure is key to making the tax system more progressive and shoring up the state’s finances before the oil industry takes another dive and New Mexico’s government is left strapped for cash again.

But the idea of passing several tax increases at a time when the state anticipates a budget surplus from an ongoing oil boom has drawn plenty of criticism. Some senators on both sides of the aisle have argued the proposed tax hikes are too much, too fast — and potentially a big political liability.

Sen. Clemente Sanchez, a Democrat from Grants who chairs the Senate Corporations and Transportation Committee, on Tuesday called for changes to the bill that would reduce the amount of money raised for the general fund from more than $300 million in the next fiscal year to an estimated $93 million, not including some other changes.

As passed by the House, for example, HB 6 called for adding several new brackets to the state’s personal income tax table.

Under current law, a couple earning more than $24,000 falls into the top tax bracket of 4.9 percent.

Under the plan approved by the House, a couple earning $75,000 would pay 5.5 percent. And any couple earning over $300,000 would fall into a new top bracket of 6.5 percent.

Sanchez proposed scrapping those increases altogether. He also proposed holding off on a plan to repeal part of the deduction for capital gains — that is, money earned from selling property or an investment.

And he suggested a smaller increase in the Working Families Tax Credit than was approved by the House. Under current law, qualifying families can claim a credit on their state income tax return amounting to 10 percent of the federal Earned Income Tax Credit. As passed by the House, HB 6 would have doubled the size of the credit to 20 percent. Sanchez proposes to raise it 15 percent.

Sanchez’s proposal would still leave in place a proposed tax on internet sales. And it would raise the motor vehicle excise tax, from 3 percent to 3.5 percent, instead of the 4.2 percent approved by the House.

“That’s trying to be a little more reasonable to the consumer,” Sanchez said.

The committee did not vote on his proposed amendment Tuesday but is expected to take it up again on Wednesday. If Republicans on the committee support it, the changes may very well pass.

But the bill’s sponsors argued changes are needed to the state’s personal income tax, which is now mostly flat.

“You shouldn’t be paying the same if you pay $24,000 or you make $24 million,” said state Rep. Jim Trujillo, D-Santa Fe. “That’s the way our rate is.”

Moreover, Rep. Javier Martinez, D-Albuquerque, argued that past tax cuts were sold to the public as a means of attracting businesses to the state but have failed to deliver.

Instead, they argued, the previous administration cut budgets or held off on spending in a way that has now caught up to the state, pointing to deteriorating roads and a court order that the New Mexico government must significantly increase spending on education.

Yes, there is a surplus, Trujillo said, but he added that much of that money is already being carved up to meet various needs such as by giving raises to teachers as well as other public employees and repairing roads.

“Those are recurring expenses,” Trujillo told the committee. “If you don’t have recurring revenue to take care of that, we’re going to go back to where we were, trying to scrimp pennies to make our budget.”

Senators on both sides of the aisle, however, were hesitant about the tax increases.

Sen. Bill Sharer, R-Farmington, argued that raising personal income tax rates in a state like New Mexico would not hit the super rich as much as small business owners.

“This burning desire to tax the rich doesn’t hit the guy with $24 million because it’s real easy for him not to be here,” he said.

Sharer pointed to doctors and plumbers.

“That’s who you’re going to hit and that’s who you’re going to put out of business,” he said.

And for all the talk of unmet needs, some argued the money would not really meet those needs, anyway.