Omnibus New Mexico tax bill a tax policy disaster

If you follow the process in Santa Fe you know that all tax hike and reduction bills are tabled as legislative leaders put together an “omnibus” tax bill for the session. With $3.6 billion in surplus revenues, there are great opportunities for game-changing reforms to New Mexico’s tax structure.

Alas, the bill (HB 547) put together by New Mexico Democrats isn’t just a lost opportunity, it is an economic disaster. At a time when the Legislature should be focused like a laser on using this windfall to make New Mexico’s tax code more business friendly and attractive as a destination for capital, the bill is a hodge podge of “progressive” revenue redistribution schemes and nanny-statism. The only significant policy reform is a 0.5% reduction in the GRT. The rest of this bill (with the exception of the rebates) should be jettisoned.

We have gone through the bill and here’s what it has and doesn’t have.

The proposed bill raises personal income taxes and creates TWO new tax brackets (6.5% and 6.9%):

For married couples earning over $200,000 but not over $500,000 their top tax rate rises from 4.9% to 6.5%. For taxpayers earning more than $500,000 the top rate will be 6.9%.

Currently the top income tax rate of 5.9% starts at $315,000

For single: filers making more than $133,500 but not over $333,500 the income tax rate is 6.5%. The rate rises to 6.9% for those making over $335,000.

The bill increases New Mexico’s capital gains tax by limiting the  deduction to forty percent of up to three hundred
thousand dollars ($300,000) of sale of a business or other capital gain.

New Mexicans will receive rebates of $300 or $600 instead of $750 and $1500 as  were  originally discussed.

The bill has  numerous “green” energy giveaways including:

A “refundable” EV tax credit: of $2,500 or $4,000 depending on income levels.

A $300 EV charging station tax credit

An energy storage system tax credit of up to $5,000.

The bill increases corporate taxes by creating a “flat” corporate income  tax by eliminating the lower rate of corporate income tax of 4.8% for corporate income below $500,000. All corporate income will be taxed at 5.9%.

Tobacco  taxes increase to an across-the-board rate of 25% (a massive increase);

The bill also raises taxes on alcohol significantly in some cases.

The new rates would be:

Spirits $1.75 per liter 9% increase.
Beer $0.56 per gallon 37% increase, 34 cents per 24/12 case equivalent.
Wine $0.60 per liter 33% increase.

The only significant positive in this bill is that it reduces New Mexico’s statewide gross receipts tax rate. That tax is currently at 5.0%. It is set to drop to 4.875% in July (under existing law). Under this legislation the rate drops to 4.5% and on July 1, 2024 to 4.3/8ths. So, the BEST aspect of this bill is its reduction in the GRT rate of an additional 0.5%.

Sadly, the bill does nothing to address GRT pyramiding and taxation of business inputs. The Rio Grande Foundation has  long prioritized  eliminating business tax pyramiding, so this  is a massive  failure