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Tuesday, March 02, 2010

New ITEP Report: NM Special Session Tax Plan Hits Poor Hardest

An important new report was released today by the Institute on Taxation and Economic Policy (ITEP) in Washington DC. The report analyzes the tax increases agreed upon by House and Senate leadership in advance of this week's special legislative session, and finds that the agreed-upon plan would make New Mexico's already-unfair tax system even more so. The plan would impose its largest tax hikes on the very poorest New Mexicans. Measured as a share of income, the tax hikes on low-income families would be roughly eight times larger than the tax hikes on the very best-off taxpayers.

According to ITEP, the proposed budget plan:

... would impose over $220 million a year in new Gross Receipts Taxes (GRT) and cigarette taxes ... the agreement does not include any provisions to increase the personal income tax, but does include a small expansion of a low-income tax credit to help offset the regressive impact of this agreement. This ITEP analysis shows that even with the proposed expansion to this credit, the agreed-upon tax changes would fall much more heavily on low- and middle-income families than on the best-off New Mexicans.

Measuring the impact of the budget plan reveals:

    Middle-income families would see a tax hike averaging 0.5 percent of their incomes -- about 6 times bigger than the tax hike on the best-off families.

The report also shows that modifying the legislative plan to include sensible personal income tax reforms could raise the same amount of revenue while imposing smaller tax hikes on the poorest eighty percent of the state's income distribution.

Regarding income tax reforms, the report says, "New Mexico lawmakers seeking to offset the unfairness of GRT increases with income tax reforms have a variety of sensible options."

  • Repeal capital gains tax breaks. New Mexico is one of a handful of states that allow a deduction for 50 percent of capital gains. Virtually all of the benefits from this tax break go to the best-off New Mexicans.
  • Repeal income tax rate reductions. Legislation enacted in 2003 gradually reduced the top income tax rate from 8.2 to 4.9 percent. The lion’s share of the benefits from these tax cuts go to upper-income families.
  • Repeal itemized deductions for state taxes. Itemized deductions are upside-down tax subsidies, offering the biggest tax breaks to the best-off taxpayers. And New Mexico is one of only a handful of states that bizarrely offer a state income tax deduction for its own income tax. Repealing the itemized deduction for state and local taxes would enhance the fairness of New Mexico’s tax system without imposing higher tax rate.

This report can be found on the ITEP website.

Take Action: Please contact your legislators and urge them to do what's right for New Mexico's low- and middle-income families. Click for contact info.

March 2, 2010 at 03:09 PM in Economy, Populism, NM Legislature Special Session 2010, Taxes | Permalink

Comments

While I can support the last point regarding state tax deductions, you are way off base on the top two. First of all, where do YOU fit in on the tax rate scale? Unless you are willing to share the additional burden proportionately, stop advocating additional burdens on those that earn more. Besides, those folks are not "wealthy" - wealthy people don't live in NM, they just summer here. The folks that would bear that additional burden are exactly the people that create jobs - small business owners, ranchers, farmers, managers and professionals at companies like Intel and extractive industries, etc. Do we want to continue to drive those folks to neighboring states with lower or NO state income tax? The business environment is bad enough in NM. Maybe everyone should just work for the state? Gosh, where would we get the taxes from then?

Posted by: NM citizen | Mar 5, 2010 5:35:53 PM

We only have two tax brackets in NM, which means people who make $20,000 a year pay the same as those that earn a million dollars. This is plain crazy. New Mexicans in the higher end of the scale did just fine here before 2003 and going back to the rate they paid then would hardly impact their lifestyles.

There are plenty of people who make good money here at the labs, Intel, lawyers, doctors, etc. They can certainly pay what they used to pay before Richardson gave them a cut.

New Mexico has some of the lowest taxes in the nation, especially property taxes. You need to travel more NM citizen and see what it's like to live somewhere where gas, oil, mining and federal dollars aren't paying for most of everything.

The gross receipts tax is the most regressive tax that can be levied. Do you understand that the working poor and middle class pay way of proportion to what they make?

Posted by: Earl | Mar 5, 2010 8:50:52 PM