I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
How would you address the state’s budget crisis?
Welcome to our new feature, The Independent Forum. Every week we’ll ask a different question and solicit responses from a diverse group of New Mexico thinkers, pundits and other observers of the state’s political landscape. We’ll add more responses as they come in, so keep checking back to see how the conversation progresses.
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QUESTION: “When state legislators meet in Santa Fe later this month, they’ll be faced with a $600 million budget gap, and this week we’re hearing proposals from the Legislative Finance Committee as well as Gov. Bill Richardson. What would you do to address the state’s budget crisis?”
Legislators can not effectively deal with budget problems unless they are willing to endure sacrifice on their own part. It is easy for them to say there should be an across the board cut of 2 percent on state salaries. However the real issues of efficiencies are left on the cutting room floor. Case in point. The bloated and unnecessary system of numerous branch colleges, institutions of higher learning, and duplicative administrations caused by this. Fewer branch colleges would mean better education. Legislators will never go down this road, or others like it, because it means losing patronage jobs in their own districts. So they opt for other easy ways out like across the board salary cuts. Meanwhile, tens of millions of dollars are wasted on these programs. You wont see any “Profiles in Courage” written on the state Legislature.
There is no need to raise taxes to solve the budget crisis, but some of the spending decisions made over the years have made the situation more difficult than it needs to be. That said, in no particular order, I’d start out by forming a commission to thoroughly analyze the budget for wasteful and unnecessary programs, I’d eliminate Davis-Bacon labor rules on all construction projects in the state and repeal SB 33 which was passed last year and will increase cost to taxpayers by $50 million. I’d reduce the number of procedures (above and beyond federal minimums) covered under Medicaid, I’d use “clawbacks” to go after wealthy Long Term Care Medicaid recipients who are gaming the system, and I’d allow individuals to purchase health care across state lines to bring down the number of uninsured and mitigate the negative impact on Medicaid recipients.
Also, I would lay off any exempt or non-exempt government employees that I felt were not 100 percent necessary to the core functions of government. Lastly, I’d release all non-violent drug offenders from incarceration.
These are just a start. Long term, New Mexico needs to adopt a Constitutional amendment to limit annual spending growth to something on the order of inflation plus population growth in order to prevent future spending-induced budget crises.
I estimate the state’s deficit at $700 million- and that’s only if the 2 percent cuts made during the special session are extended. That’s a lot of money. And if I’m right about the number, the deficit is harder to solve with a “nip and a tuck.” New Mexico State Government must first cut and consolidate–resulting in a more productive state operation to the tune of about $400 million. Then, because we can’t find $700 million in cuts alone, we need to identify one tax increase which sunsets when the economy improves. The best one is to reinstate the food tax which gives us about 229 million. It’s not working to help the poor in the first place. Let’s find a more affordable and effective way to really help the poor. Cut, consolidate, reinstate a tax that, when repealed, didn’t work, and call it a night.
New Mexico can tighten its belt further. Initiate a line-by-line reexamination of agency budgets in search of waste. Eliminate more exempt positions. Erase all public information jobs except in agencies that routinely get lots of citizen inquiries; department secretaries should deal with the press. Restore the income tax code to its pre-Richardson status.
One of the biggest problems we have is we don’t know exactly how big the budget hole is. There is still too much uncertainty in the state’s revenue forecast and the federal government has not yet made a final decision about how much money to give the states for the last half of 2011. The state owes it to its citizens to make sure that every dollar budgeted is well spent. It’s not clear that the state has done enough yet to find ways of saving money that could be saved without impacting necessary services. It’s also not unreasonable to think that taxes may be raised. But raise them too much and you negatively impact economic development when we need it the most. As evidence of all this uncertainty, on Monday the Legislative Finance Committee proposed a budget that intentionally left a revenue gap of $200 million, apparently leaving the door open for tax increases.
So what taxes could be raised with the least impact on economic development? One would be to adjust the taxation of capital gains and how much we allow itemized deductions for state income taxes. (The former can impact investment but federal policy is more controlling and New Mexico is more generous than most other states.) This would not involve changing the rates but would make the tax somewhat more progressive. Another possibility is raising motor vehicle taxes which are low in comparison to other states, but like capital gains, either option would raise much less now than in better years. We should probably cap the film credit, which continues to grow significantly every year. As a last resort, we should reinstate the tax on food and substitute targeted tax relief to those who really need it (this is a complicated and emotional subject but we could probably reduce overall GRT rates at the same time, reducing regressivity and pyramiding at the same time). None of these tax increases is likely to significantly impact job creation in the state which is the number one problem that the state faces after losing 40,000 jobs last year.
The road most likely to be taken will be a general increase in the gross receipts tax. Bluntly, it polls well. It’s perceived as fair—being paid by everyone. Other states have done it. Conservatives are more accepting of transactional taxes and one can argue a portion of it is exported to “tourists.” Special interests like the idea because it has the potential to take them out of the crosshairs.
All that said, raising the GRT is a profoundly bad idea. To put it bluntly, if you want to hurt business, particularly small businesses, and the poor at the same time, this is how you do it. While the GRT is a little less regressive than some sales taxes because of its breadth, it is highly regressive nevertheless (meaning it hurts people more in the relative sense as you go down the income scale). The breadth of the base results in a significant pyramiding problem (taxing business inputs over and over resulting in inefficiency, distortion, and ultimately damages economic competitiveness). It’s not talked about much, but in the last several years we already increased the rates in the state’s largest tax program tremendously (Albuquerque rates are 14 percent higher than in 2003 and were 18 percent higher before a couple of increments expired, and Santa Fe’s tax rate is up a whopping 28 percent from 2003). Current rates are already scheduled to go up more. Also, the state competes with local governments and unlike the local governments, the state has more and better options to look to for money. So, look for this to happen anyway.
FRED NATHAN, executive director of Think New Mexico:
The Greater Albuquerque Chamber of Commerce (GACC) continues to advocate the reimposition of the food tax. If the chamber wants to raise taxes, it would be wiser to tax alcohol, cigarettes and junk food (soda pop and candy) than making necessities like fruits, vegetables and baby food more expensive for New Mexico families.
According to New Mexico Taxation and Revenue Department, the food tax would be a new tax of approximately $460 on the typical family of four in New Mexico. Many of these families are living paycheck to paycheck and struggling to make payments on their homes and cars while paying the electric bill. What GACC is overlooking is that when you reimpose the tax on these families, they will have less money to spend on other goods and services which will only harm other businesses and make a bad recession worse. Whatever money a food tax would generate for the state would be offset by reduced tax collections on other goods and services that these families can no longer afford. Thus, a new food tax would operate like an anti-stimulus package.
The Governor’s budget balancing task force, on which both Ms. Cole and I served, found that reimposing the food tax would make our current tax system even more regressive. It also found that “many low-income families do not receive food stamps.” Those who do only receive about $3 per day, which means that they too buy groceries and would have to pay the tax. The task force also found that only two states continue to fully tax food: Alabama and Mississippi. For more information about the food tax and how you can contact your elected officials about it, please go to www.thinknewmexico.org.
While the food tax would do real harm to New Mexico’s families and businesses, there are several taxes which, if increased, would be part of the solution to the current budget deficit, while also doing some positive social good. These are taxes on tobacco, alcohol, and junk food, all of which contribute to a variety of health problems. When these taxes increase, consumption of the taxed goods decreases, especially among young people who have the least amount of discretionary income and are, therefore, the most price sensitive to a tax increase. Such a tax package would generate nearly $100 million of new revenue for the state.
The food tax is a regressive, anti-family tax on necessities, while a tax on alcohol, tobacco and junk food makes sense in a state struggling with obesity, diabetes, liver disease (NM is #1) and Fetal Alcohol Syndrome. Please contact Governor Richardson and your legislators and ask them not to reimpose the food tax.
I have to take the long view on this one. Newsflash: New Mexico has suffered an enormous number of corruption scandals in recent years. What’s less obvious is how these scandals have negatively influenced the state’s economy and, by extension, our current budgetary crisis.
A group called Transparency International has spent the last couple decades examining the connection between perceived government corruption and economic development. Each year they release something called the Corruption Perceptions Index, which measures “the perceived level of public-sector corruption in 180 countries and territories around the world.” You can browse the 2009 results here.
Why do I bring this up? Well, look at the countries at the top of the index, the ones where citizens have the strongest belief in the honesty of their public officials. Now look at the countries at the bottom of the list, the ones where citizens have the strongest belief that their public officials are corrupt. Notice that the richest countries in the world are clustered at the top of this list, while the poorest ones are stuck at the bottom.
See where I’m going with this? If we’re truly interested in a long-term solution to the state’s economic woes, our state’s elected officials need to show the world that they’re serious about cleaning up New Mexico’s bad image. Besides, it’s in their own best interest. After all, the vast majority of public officials in our state are good, honest people, but New Mexico’s current system of weak ethics laws distorts the public’s perception. Legislators finally passed a modest campaign contribution limits bill during the last session, along with a handful of other significant reforms, but we need to go much, much further.
Let’s be clear. New Mexico faces a revenue crisis, not a budget crisis. We are short on revenue for three reasons: 1) Since 2003 New Mexico has cut taxes by a billion dollars primarily for the wealthy; 2) The drop in gas and oil prices has meant less tax revenue for the state; and 3) The national recession has meant that many of the state’s other tax revenues are also down. We only have control over one of these three revenue problems: tax cuts.
Cutting personal income taxes, which is one of the most stable sources of revenue, was like opening up an artery. But when New Mexico’s blood pressure dropped, state leaders made deep spending cuts instead of dealing with the underlying revenue problem. They put a Band-Aid on a gushing wound, knowing that eventually, the patient would need a transfusion.
Projections indicate that revenue won’t recover to pre-recession levels for another three to five years. That’s a long time for a state to be anemic—especially a state that has already spent decades on the bottom of the heap in terms of child poverty rates, health insurance rates, graduation rates, and more. What company would want to locate in a state that cannot (or will not) adequately educate or insure its own children?
After cutting taxes by a billion dollars and cutting programs and services like education, health care and public safety by more than a billion dollars, it’s past time to fix the revenue problem. To be good stewards, lawmakers should raise at least a half a billion in new revenue. And they need to do it in ways that would have the least detrimental impact on working families.
The Institute on Taxation and Economic Policy in Washington, D.C., says New Mexico now has the 13th most unfair tax system in the nation. Low-income families pay more than twice the percentage of their income in state and local taxes than do upper-income families. Any changes to the tax system should also seek to restore some fairness to it. That means raising personal income taxes for the wealthiest and avoiding increases in the gross receipts tax or taxing food—both of which would disproportionately affect the working families that are already struggling the most in this economy. Asking out-of-state corporations to pay their fair share would help New Mexico-owned businesses be more competitive, and raising taxes on non-necessities like tobacco, alcohol and junk food, are also better choices.
When times were good, we cut taxes for the wealthy. Now that times are tough, we’re cutting services for kids and working families. That’s just wrong and concerned New Mexicans should let their legislators know it.