Peddling Economic Ignorance

Under the guise of “public awareness” the Center for Civic Policy has been calling legislators to complain about their support of the recent “tax package:”

A New Mexico nonprofit has launched a “public awareness” campaign highlighting the votes of state lawmakers on a massive tax package approved on the final day of this year’s 60-day legislative session.

They’re correct to criticize the haste and secrecy with which the “tax package” (the main feature of which was to reduce the corporate income tax rate from 7.6% to 5.9%) was put together at the end of the session. But did anyone happen to see if they made similar criticism of the way the (Un)Affordable Care Act was put together with the similar haste and secrecy? It would be nice if political process was open, careful and informative. But, unfortunately politicians, having incentives like the rest of us, act like politicians. It’s time we all recognized that as a fact of life.

Let’s clear up some of the Center’s economic confusion by briefly summarizing some basics of taxation related to NM’s corporate income tax:

Corporations may be legal entities responsible for the corporate income tax. But corporations don’t actually pay the tax, only people pay taxes. The actual tax is borne by the owners of the corporation and its customers.

Corporations are a source of prosperity in that they make up a potential supply side of voluntary exchanges between them and their customers. Those exchanges, voluntarily entered into, would not take place unless both parties to each exchange benefited. Onerous tax policies like NM’s corporate income tax reduce voluntary exchanges and prosperity.

New Mexico has the worst (or close to it) corporate income tax regime in the country. While the rate may now be a bit lower, its formula for determining the amount of income subject to the tax puts New Mexico corporations at a huge disadvantage compared to other states.

Since the corporate income tax is so awful, it’s quite possible that the reduction in its rate will actually increase revenue. That would certainly be the case with even lower rates and a more reasonable definition of income subject to the tax.

Further exacerbating the bleak tax picture for corporations is NM’s gross receipts tax. Since they pay gross receipts tax on many services that are inputs to production, they are at a disadvantage relative to other states where services are not taxed.

New Mexico needs further tax reductions by making the corporate income tax and gross receipts tax less onerous. But if the Center is really concerned about tax revenue (I’m not — government has already overreached), then they should be concerned about actually having someone to tax.

 

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2 Replies to “Peddling Economic Ignorance”

    1. I’m not sure what this has to do with the original post, but we just obey the law as administered by Congress and the IRS.

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