In a bipartisan vote, a Senate committee late Thursday endorsed an omnibus tax bill that would free most seniors from New Mexico’s income tax on Social Security benefits and would reduce the gross receipts tax rate by a quarter percent.
While the bill still faces other hurdles in the final days of the legislative session, the 9-1 vote by the Senate Tax, Business and Transportation Committee marked a big win for Gov. Michelle Lujan Grisham, whose legislative priorities include exempting Social Security benefits from the state’s personal income tax and cutting the gross receipts tax rate.
“The governor is committed to putting more money back in New Mexicans’ pockets, and we’re glad to see her priorities moving forward,” Nora Meyers Sackett, Lujan Grisham’s press secretary, wrote in an email after the vote.
The bill also would extend the sunset on the state’s new solar market development income tax credit by eight years and increase the cap to $12 million from $8 million.
“This is a significant package of tax changes and incentives, and combined, they will help the economy, help the environment and help reduce the tax burden on our residents and businesses,” said Jon Clark, deputy secretary of the New Mexico Economic Development Department.
Taxation and Revenue Secretary Stephanie Schardin Clarke said New Mexico is one of only 12 states that tax Social Security income, and the proposed reduction in the state’s gross receipts tax rate, to 4.875 percent from 5.125 percent, would be the first in 40 years.
“Through reducing the gross receipt tax by a quarter percent and eliminating Social Security tax for low- and moderate-income New Mexicans, this bill provides significant and lasting tax relief for all New Mexicans,” Schardin Clarke said in an interview.
Individuals with incomes under $100,000 and married couples filing jointly with incomes under $150,000 would be exempt from the tax on Social Security income under the proposed legislation.
The committee wrestled with a provision to add a five-year moratorium on local governments’ authority to increase their gross receipts tax rates, effectively canceling out the state’s proposed reduction.
“When you tie the hands of our cities and tell them that they cannot raises taxes, that is very harmful, and it’s going to create major problems over the next few years if this bill passes in its current form,” said Sen. Gay Kernan, R-Hobbs. “Every community is different. Every municipality is different. There are needs out there that we cannot anticipate at this point.”
The committee ultimately stripped the provision from the bill amid pushback from some lawmakers and representatives of municipal and county governments.
“If [Senate Majority Leader Peter Wirth, D-Santa Fe] votes for this tonight, he’s probably saving his marriage,” Sen. Ron Griggs, R-Alamogordo, said jokingly about Wirth, whose wife, Carol Romero-Wirth, is a Santa Fe city councilor.
The tax exemption on Social Security income would cost the state an estimated $84.1 million annually, and the gross receipts tax reduction would cost $190 million a year.
The average person in New Mexico would save $95 a year under the gross receipts tax cut, Schardin Clarke said.
Asked whether the savings would make a difference in New Mexicans’ lives, Schardin Clarke said it would.
“I really think it will, especially for lower-income people who really have to spend all of their incomes on necessities,” she said. “That tax relief is going to make their paychecks stretch further, and I do think it’s going to make a big difference.”
The tax package will be considered next by the Senate Finance Committee.