A Tax New Mexicans Have Escaped, for Now

Source: Tax Foundation, “State Inheritance and Estate Taxes: Rates, Economic Implications, and the Return of Interstate Competition” 

In terms of pro-growth public policy, it would be tough to do worse than New Mexico. A complex and cumbersome tax on gross receipts, no right-to-work law, occupational-licensing overkill, little interest in school choice — the list is extensive.

But as a new report from the Tax Foundation reveals, it’s not all bad.

While an estate tax is “imposed on the net value of an estate, after any exclusions or credits, at the rate indicated by the total value of all taxable bequests and before any distribution to heirs,” an inheritance tax is “paid by legatees based on their share of the inheritance and, often, their relationship with the deceased.” Surprisingly, the Land of Enchantment’s solons have yet to impose either type of death tax. That’s not the case for 18 states, including Hawaii, Oregon, Nebraska, Kentucky, Pennsylvania, and Maryland.

The Tax Foundation notes that shortsighted pols fail to recognize that with death taxes, “compliance costs may approach revenue yield.” Even the left-leaning Brookings Institution has acknowledged the “wasteful process” of dodging the taxes via gifts/transfers, asset-shifting, and hedging.

In addition, “numerous studies” have shown that relocation-inducement is real. Revenue bureaucrats in deep-blue Connecticut, in a 2008 report, concluded: “While policy makers must weigh a variety of factors in crafting tax policy, it appears that the data suggests [sic] that they cannot rule out that levying an estate tax may negatively impact … migration of their residents.”

With none of New Mexico’s neighbors taxing death (see map above), it’s wise for the state to continue to avoid both estate and inheritance levies. But the fiscal picture remains lousy, and with oil-and-gas prices low and zero desire in Santa Fe to cut state spending, vigilance is warranted.