Despite a $3 billion budget surplus, a shortage of skilled professionals across the economy, a healthcare access crisis as doctors and other healthcare workers leave the state, and a declining state population trend, House Democrats are planning to raise taxes anyway – creating new higher personal income tax brackets, taxing investment income, and making it more expensive for everyone from doctors and anesthesiologists to engineers and scientists to live and work in New Mexico. A package of tax changes passed the House Taxation and Revenue Committee this morning.
“We need to compete for jobs, talent, and business growth,” said Chamber President & CEO Terri Cole. “Instead, this legislation tells all of that to go elsewhere. It’s a disappointing tax package that, as drafted, represents an incredible missed opportunity for the state.”
Despite bipartisan support for significant personal income tax reform – which could have provided major relief for small businesses, families, and the middle class – the PIT changes outlined today offer scant, marginal reductions for the middle class and inflict serious reputational damage on the state from an economic development standpoint. They would also exacerbate current workforce recruitment challenges by taking the top income tax rate to nearly 7% – higher than all of the following western states: North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Texas, Colorado, Wyoming, Montana, Idaho, Utah, Arizona, Nevada, and Alaska. Under the plan, not only would New Mexico’s GRT structure make doing business in our state uniquely expensive, but personal income tax rates would rank among the top 15 highest states in America.
The tax changes outlined today would be in addition to another proposal awaiting a House hearing, which would impose a BRAND-NEW TAX on most employers and employees to pay for a massive new government program mandating the provision of up to 3 months of family/medical leave per year, every year. Despite support from the Governor, the business community, and a bipartisan group of lawmakers, the tax package DOES NOT address gross receipts tax pyramiding; a proposal was under consideration to eliminate the gross receipts tax on business-to-business transactions for professional services, which would have helped small businesses better compete with their corporate counterparts and helped New Mexico businesses compete with other states’ companies for work.
And, the legislation would gut New Mexico’s capital gains tax deduction, raising taxes on investment income. Leading economists have noted that taxing capital gains is “about the most inefficient source of tax revenue in the economy” and could lead to capital flight.
“The apparent ease with which this Legislature piles on costs and challenges for small businesses is shocking,” continued Cole. The bill would reduce the overall gross receipts tax rate by .625% percentage points between now and July 1, 2024. In 2023, the rate would be reduced from 5% to 4.5% and then to 4.375% on July 1, 2024. Should state revenues decline abruptly, there is a “trigger mechanism” to increase the tax rate, although current revenue forecasts suggest this would be unlikely.
Other provisions would provide tax credits for the purchase of electric vehicles or installation of electric vehicle charging units, GRT deductions for the sale of child care services and environmental modifications to a Medicaid patient’s residence, and higher tax rates on cigars, cigarettes, e-cigarettes, and liquor. The bill would extend the sunset on the income tax exemption for military retirement pay for 10 years (currently set to expire in 2026), as well as move to single sales factor apportionment for corporate income taxation, both of which the GACC supports.
It does not contain an expansion of the Angel Investment Tax Credit, nor does it remove the current income caps on the Social Security income tax exemption passed last year.
The package would increase the child income tax credit and provide one-time tax rebates of $300 per individual / $600 per married joint filer (the Governor had proposed $750 per individual / $1500 per married join filer).
Read the Albuquerque Chamber’s Legislative Roundup this evening for more information and analysis about this package of proposed tax changes.