By Nicole Maxwell
A bill seeking to add a tax exemption for tipped workers was introduced in the Senate last week.
SB 285 would exempt tips from state income tax. One of the bill’s sponsors, Sen. Jay Block , R-Rio Rancho, told NM Political Report it’s a “common sense” bill and “good for the people in New Mexico to keep more of their hard earned money.”
“People who are working in the service industry are having a hard time making ends meet, so every little bit helps, because they’re just taxed to death and inflation is killing them,” Block said.
The bill is also sponsored by Sen. James Townsend, R-Artesia, Sen. Nicholas Paul, R-Alamogordo, Sen. Anthony Thornton, R-Sandia Park, and Sen. Pat Boone, R-Elida.
The bill also has the support of the New Mexico Chamber of Commerce.
“This legislation recognizes the vital role that service industry workers play in our economy and ensures they can keep more of their hard-earned income. By reducing the tax burden on tipped workers, this measure supports small businesses that rely on a strong workforce and enhances the financial well-being of thousands of New Mexicans,” New Mexico Chamber of Commerce Public Policy Director Alison Riley told NM Political Report.
SB 285 falls in with President Donald Trump’s campaign promise to end taxes on tipped wages.
If a worker currently gets $20 or more in tips per month, those wages are taxed, according to the U.S. Tax Code.
The nonpartisan nonprofit Committee for a Responsible Federal Budget estimates exempting all tipped income could cause federal revenues to sink by $150 million to $250 million over a decade “on a static basis and could reduce revenue significantly more once behavioral effects are incorporated,” a Committee for a Responsible Federal Budget article states.
The bill was sent to the Senate Tax, Business and Transportation Committee for discussion.
First, it does seem odd to differentiate income by type. How is tipped income unique? Second, with NM relying primarily on a regressive sales tax (over 7%) and secondarily on a somewhat progressive income tax (under 5%), it seems odd to focus on the later and not the former. Third, why not restructure the taxes to be overall less regressive to benefit all low-wage workers instead of being less regressive for tipped workers, most of whom but not all earn low wages.