Top 10 reasons New Mexico needs to eliminate the income tax!
There has been a lot of talk recently about eliminating New Mexico’s personal income tax and we are here for it at Rio Grande Foundation. We believe that eliminating NM’s PIT (probably phasing it out rather than in one fell swoop) would have profoundly positive impacts on New Mexico’s economy and that it would be beneficial to ALL New Mexicans.
1. Encourage work/reduce dependency:
- New Mexico has long struggled with low workforce participation rates. The Legislative Finance Committee has noted that, despite the billions New Mexico spends annually to fight poverty. Improving workforce participation rates would be the best way to fight poverty.
2. Incentivize Saving and Investing
- Taxing interest, dividends, and capital gains reduces the future value of savings while encouraging immediate spending.
- When investment returns are heavily taxed, people save less money, leaving fewer funds available for banks to lend to new businesses. Thus, income taxes reduces capital availability and means investments must be made outside New Mexico.
3. Attract Talent and Wealth
- Workers and businesses frequently move from high-tax states to areas with no state income tax, such as Texas or Florida. This can especially include high income workers like medical professionals.
- High federal income and corporate tax rates can cause businesses to relocate their headquarters . This is one reason why new Mexico has no major companies headquartered here.
4. Increase Job Creation and Business Growth
- Many small businesses file as “pass-through” entities, meaning their business revenue is taxed at individual income tax rates. Eliminating the PIT will help small businesses.
- Lower profit margins due to income taxation reduce a business owner’s ability to expand operations or hire new employees.
5. Diversify New Mexico’s Economy:
- Historically New Mexico relies on oil and gas and federal spending. Eliminating the personal income tax will bring new businesses and jobs to the state that are not tied to those industries.
6. Reverse New Mexico’s Youth Exodus:
- New Mexico has seen an exodus of young people to other states. Diverse job opportunities and greater affordability are critical for keeping young people in New Mexico and attracting more. New Mexico is spending hundreds of millions of dollars on “free” college. They should be able to find jobs and stay here in New Mexico.
7. Reduce corporate welfare:
- The LFC has found that New Mexico’s economic development incentives aren’t very effective. Eliminating the personal income tax will allow the Legislature to eliminate many costly incentives that don’t do much for New Mexico’s economy.
8. Improve Market Efficiency:
- Politicians pick winners and losers. Income tax codes are riddled with special deductions, credits, and exemptions designed to encourage specific behaviors (e.g., buying electric cars or taking out certain loans).
- Manipulates consumer choice. These carve-outs artificially alter the free market, causing capital to flow toward politically favored sectors rather than where it is most economically viable.
9. New Mexico has plenty of money:
- New Mexico remains awash in cash. Even with 75% spending growth under current Gov. Lujan Grisham, the state has ample money to eliminate its personal income tax. New Mexico also has $75 billion in its various “permanent funds.” Eliminating the income tax would “cost” $2.1 billion, but would unlock jobs and economic growth.
- As the LFC has noted, new government programs have not done much to reduce poverty and increase living standards.
10. Eliminating the Income tax also eliminates Social Security taxes!
- New Mexico is one of a vanishingly small number of states (just 8) that taxes Social Security. It is time to completely eliminate taxes on Social Security.