Eliminating New Mexico’s Income Tax

While most economists understand the economic benefit of reducing or eliminating income taxes, not many states have real-world data to show how income tax cuts would impact their own economies. New Mexico, however, is one state with recent experience with significant income tax cuts. Between 2003 and 2008, New Mexico reduced its top personal income tax rate from 8.2 percent to 4.9 percent. Not surprisingly, during that same time period, New Mexico’s average personal income level rose from 47th in the nation to 43rd after having been stuck at 47th in the nation for several years.
The Rio Grande Foundation’s new paper outlines a plan to eliminate the state’s personal income tax entirely within four years by simply holding spending growth to 4.5 percent annually. Since the 9 states lacking an income tax have personal incomes averaging $7,000 more per year than New Mexico, eliminating the personal income tax would conceivably push the state out of the tier of poor states and push it up to the middle of the pack.