It’s always nice when New Mexico receives positive national recognition. Our state appears at the bottom of all-too-many good lists and at the top of all too many bad ones.
So, it is nice that the magazine Forbes saw fit to include Albuquerque and Las Cruces in its list of 25 Best Places To Retire at 25 and 10 respectively. Our sunny weather, mountain views, and low taxes on retirees were cited among the positives these two cities had to offer.
It’s nice anytime New Mexico is recognized for good things in national reports. Unfortunately, retirees do not drive economic growth. What does drive economic growth is entrepreneurs starting businesses and hiring people to work at them. Retirees are largely consumers of goods and services. Some of them volunteer and many of them contribute in important ways to their communities, but few of them by definition are starting businesses.
Why does New Mexico attract retirees, but not businesses (no Fortune 500 company is headquartered within our borders)? For starters, our overall tax burden is relatively high (14th in the nation as a portion of personal income according to the Federation of Tax Administrators). More money in government’s coffers often means less to start or operate a business.
Of course, a relatively heavy tax burden does not impact everyone equally. Our state’s tax code is also set up to protect wealth, not the creation of wealth. According to the Tax Foundation, property taxes generate the second-lowest percentage of overall revenue among the states. I am not saying that high property taxes don’t stifle economic growth or that we should raise property taxes, rather this data is meant to explain why New Mexico is popular with retirees while remaining economically impoverished.
While our property taxes are low, our “sales tax,” which is properly known as the gross receipts tax, taxes a variety of business inputs and services that are left untaxed in other states. These include payments to lawyers and contractors that are often a necessary part of small businesses. Gov. Martinez and the Legislature took steps to mitigate this situation earlier this year, but a more thorough discussion of tax reform is needed.
Not satisfied with taxing those who wish to start businesses and generate wealth, New Mexico also regulates them quite heavily. According to the Institute for Justice’s report “License to Work” which grades states on their regulatory requirements to engage in productive economic behavior, New Mexico “is the ninth most broadly and onerously licensed state with the 12th most burdensome licensing laws.”
It is worth mentioning that a high quality educational system can assist in the creation of an educated workforce which also leads to the creation of businesses and economic growth. The poor performance of New Mexico’s K-12 system has been known for years and Gov. Martinez has made reform a top priority.
Recently, several critiques including those from the Rio Grande Foundation and the US Chamber of Commerce have highlighted problems in higher education. An improved higher education system is also necessary to generate future business leaders.
When policymakers consider ways to make New Mexico wealthier while it remains an attractive retirement destination, it is important to realize that there needn’t be a tradeoff between the two. For example, 21 of the top 25 retirement destinations (including all of the top five) are “Right to Work” states. This policy reform increases productivity and labor market flexibility, making a given state more attractive to small and big businesses alike.
Appearing on a “good” list is nice and we welcome retirees to New Mexico with open arms and encourage them to stay. To make New Mexico truly prosperous, however, we need to enact policy reforms targeted at growing our economy.
Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.