March 14, 2019

Senate panel pares back proposed tax increases

A Senate committee rolled back proposed tax increases in a sprawling bill that would change rates on internet sales, car purchases, e-cigarettes and more.

House Bill 6 represented a push by top Democrats in the House of Representatives to shore up the state’s finances, which now rest largely on revenue from oil and gas. But it prompted plenty of skepticism for threatening to raise taxes for many New Mexicans at a time when the state enjoys a hefty budget surplus from an energy boom.

The big question now is when the bill will get a hearing in its next and last committee as the Legislature hurtles toward a noon Saturday adjournment. If the Senate Finance Committee doesn’t act on the measure until Friday, House Democrats may be left with little time to negotiate and have to choose between either accepting the Senate’s changes or nothing.

On Thursday, the Senate Corporations and Transportation Committee voted to completely scrap proposed increases to personal income tax rates.

The committee also eliminated a proposed hike in vehicle registration fees and scaled back an increase in the motor vehicle excise tax, which would go to 3.5 percent from 3 percent, instead of the 4.2 percent proposed by the House. The Senate panel also approved only half as big an increase in a tax credit for working families as was approved by the House.

Sen. Clemente Sanchez, a Democrat from Grants who chairs the committee, has said the changes such as the lower vehicle tax would ultimately be fairer to consumers.

“The consumer out there is the one that’s paying for that every year,” he said during a hearing earlier in the week.

Some tax increases were kept in the bill, though. The committee is sticking with its proposal to collect taxes on internet sales, for example. And the bill still includes an increase in taxes on e-cigarettes.

As with any big tax bill, Thursday’s hearing drew a small army of lobbyists and spurred plenty of wrangling around provisions for specific industries.

The American Cancer Society blasted Sanchez’s proposed changes, for example, noting the revised bill would cap the tobacco tax for cigars at 50 cents. And it would impose the state’s first tax on e-cigarettes at a level modest enough to win the backing of a vaping industry association — 5 cents per milliliter of liquid nicotine.

“It’s frustrating and disheartening to see New Mexico dangerously close to gifting Big Tobacco the bills it has on its wish list: tax increases so low they do nothing to curb tobacco addiction or use,” said Sandra Adondakis of the American Cancer Society Cancer Action Network.

The bill’s co-sponsor, Rep. Jim Trujillo, argued against the measures.

Trujillo, D-Santa Fe, said the House tax proposals were necessary to wean the state off its reliance on oil money. While the state is enjoying a boom now, he cautioned that much of the money it has generated will be committed to big-ticket budget items like improving roads and raising pay for teachers.

“We already spent the surplus,” Trujillo told reporters on Thursday.

If the state does not roll back some of the tax cuts enacted in past years, the state will revert to slashing budgets when the oil market drops again, the bill’s proponents have argued.

With the prospect of legislation shaping the state’s budget beyond the current oil boom, the governor’s chief of staff watched Thursday’s hearing from the back of the committee room.

Legislative aides had projected the original bill would raise more than $330 million in tax revenue during the first year. Under Sanchez’s changes, which the committee voted unanimously to adopt, the bill would raise around $93 million during that time, not including some other modifications.

For Republicans, this was the problem, and HB 6 became a poster child for the argument that the state government cannot live within its means.

Republicans on the Senate Corporations and Transportation Committee voted against the measure Thursday. But it passed 7-2, with Sen. Pat Woods, R-Broadview, absent.

One member of the committee tried to forge a compromise.

Sen. Bill Tallman, D-Albuquerque, said he thought the bill passed by the House was too big but that Sanchez’s proposal was not big enough. Tallman told the committee he had been working on a proposal that would only raise income taxes on people earning more than around $90,000. But the senator said he could not persuade five members of the eight-member committee to get behind his idea.