Reform Tax Code, Budget to Grow Economy

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screen-shot-2017-01-24-at-7-25-44-amElections have consequences. And, while Republicans strengthened their standing nationwide, here in New Mexico, Democrats are ascendant with working majorities in both houses of the Legislature.

Democrats are undoubtedly chomping at the bit to push through a whole range of policy initiatives, possibly via constitutional amendments which will circumvent Gov. Susana Martinez. But the most pressing issue is the budget situation and the economy as a whole and something needs to be done about it right away. While acknowledging the role of declining oil and gas prices, corporate tax cuts enacted in 2013 (and supported by vast majorities of Democrats) will be targeted. Some on the far-left would even like to chip away at the Richardson-era tax cuts that took New Mexico’s top income tax rate from 8.2 to 4.9 percent where it is now.

While Democrats’ instinct may be to spend more money on new programs, the weakness of New Mexico’s economy is a real obstacle. By nearly any economic measure, New Mexico’s economy is sputtering. With an unemployment rate stuck at 6.7 percent (second-highest in the nation), tax hikes are not going to do much to attract businesses to the Land of Enchantment.

Some will say, with all those tax cuts, why isn’t New Mexico’s economy doing better? The truth is that the 2013 tax cuts were rather small, reducing state spending by about $70 million annually. Those lost revenues were largely offset by locally adopted increases in gross receipts taxes.

New Mexico’s tax system, especially its regressive and job-killing gross receipts tax, is broken. That should be an opportunity for business-friendly tax reform that jump-starts economic growth while eliminating special interest tax breaks. Alternatively, policymakers should consider tossing out the entire gross receipts tax structure and adopting something that generates similar revenue. The Rio Grande Foundation is working on detailed proposals along these lines.

Fundamentally reforming New Mexico’s tax code could generate economic growth and additional revenue in the future, but that process will take some time even in the best-case scenario that bi-partisan reform is possible.

Legislators face the immediate issue of balancing the budget without much in the way of new revenue. And, no, despite whining and statements to the contrary, New Mexico’s budget is hardly “cut to the bone.” At $8,197, the Land of Enchantment spends about double what neighboring Texas spends per-person ($4,098). Colorado is the “biggest-spending” neighbor of New Mexico, yet it spends only $6,048 per-person according to the website Ballotpedia.

There is room to cut; we just need political leadership in Santa Fe to do it. The Rio Grande Foundation has outlined a detailed set of savings that would actually result in a more efficient government. The important thing is to go beyond leaving positions open and reducing funding while keeping the skeleton of government intact. Instead, we need to fundamentally change the way New Mexico government works.

I’m under no illusions that this will be easy. New Mexico government (let alone the outsized federal presence in our state) has grown for some very important historical reasons, but a big one is to provide jobs and economic activity in poor and underdeveloped areas of the state. Rather than adopting economic policies that enable businesses to create real jobs and economic growth, there has been a long New Mexico tradition of locating branch campuses or other “quick fix” government jobs in those areas. This has to change. We simply don’t have the money to fund all of the government we might want anymore.

Democrats lost big on Election Day nationwide. They have lost even bigger at the state level during President Obama’s term in office. While they’ve succeeded in regaining power here in New Mexico, that is simply an indicator of New Mexico’s inherent liberalism and likely opposition to Donald Trump among our majority-minority electorate.

We have serious economic issues to solve here and big government hasn’t worked. Maybe it is time for Democrats to surprise us all with a real plan to wean our state from government dependency and poverty that includes both dramatic tax reform and fiscal restraint.

Gessing is president of New Mexico’s Rio Grande FoundationThe views in this column are the author’s alone and do not reflect the views or opinions of New Mexico In Depth. The column originally appeared in New Mexico In Depth’s 2017 Legislative Special Edition

2 thoughts on “Reform Tax Code, Budget to Grow Economy

  1. Addressing the culture of corruption in our government entities would decrease costs too.

    The CFEs who participated in our survey estimated that
    the typical organization loses 5% of revenues in a given
    year as a result of fraud.

    acfe.com/rttn2016/docs/2016-report-to-the-nations.pdf

    Perhaps the AG and the Governor could start with asking the construction contractors that didn’t pay their $1,000,000 fines, as required per their settlement agreements, to pay up! Those desperately needed funds would have gone into the general fund if they had made them pay. This state continues to drain the poor so they are grateful when they are thrown bones to gnaw on by the corrupt “kings.”

  2. This article, while making some good points, restates the typical Republican mantra that if only taxes were cut, all would be well. Tax cuts at the national level going back to the Reagan presidency did not stimulate economic growth, except for the already well to do. Tax cuts are not the solution to New Mexico’s budget and economic problems.

    Look at states with a high quality of life, solid educational systems and robust economies and you will find that they all have high taxes: New York, Massachusetts, Washington, Oregon, New Jersey, to name a few.

    Instead of starting with “how much do we have to spend,” policy makers should start with “what do we want the state to look like” and then determine how much it will cost and raise the revenue to fund the vision. That could include reforming the regressive gross receipts tax and creating a more appropriate level of progressive income tax for businesses and individuals. Let’s remember that “cheap is cheap” and “you get what you pay for.”

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