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…
Tax increases head to governor’s desk
A revenue package that is a cornerstone of a proposed 2011 New Mexico state budget passed the House Wednesday night by a vote of 38-28; it now goes to the governor’s desk. The measure raises about $240 million in taxes through various measures. But it also may create extra pain for some local governments; for example, Albuquerque could lose approximately $1.6 million in the budget year that starts July 1 and $3.2 million in the following year, state officials told the Independent. Albuquerque is experiencing a budget shortfall this year, and expects a bigger shortfall next year.
The bill effectively reapplies local and county taxes on food, which average about 2 percent across the state, while clawing back annual state payments to local governments. Those payments are made to compensate for the annual loss of revenue caused by the repeal of the food tax in 2005.
The likely loss of revenue caused by the state tax bill is due in part to the difference between the local gross receipts tax rate in Albuquerque now and the rate when the state computed how much compensating revenue to send to the city after the state tax was repealed on food.
Santa Fe, on the other hand, might gain some revenue next year because of the food tax provision, but lose up to $500,000 in the following year.
Those and other municipalities may choose to raise taxes or cut spending to balance their budgets, state officials have said when defending the tax bill that many view as central to helping the state address next year’s projected budget shortfall of several hundred million dollars.
The tax package the House passed early Wednesday evening also increases the state gross receipts and compensating tax rate by an eighth of a cent, to 5.125 percent.
The bill closes a deduction used by people who itemize their state income tax returns, referred to by advocates as the ‘PIT add-back,’ and expands the number of people who qualify for a low-income tax rebate. Those measures accompanied the gross receipts tax increases as a way to address concerns that the tax bill would disproportionately affect low-income people.
It also imposes a tax on out of state purchases by New Mexico businesses that aren’t currently subject to gross receipts tax.
Republicans unified in opposition
The House passed the tax bill despite vigorous opposition from Republicans, who stretched debate on the bill through the full three hours allowed.
“In state government we assume that the only way to solve problems is to raise taxes,” Rep. Tom Taylor, R-San Juan, said. “We have a really good opportunity here to streamline state government, but we’re throwing it away.”
“We’re about to cross an economic desert, and everything we’re doing assumes there’s an oasis over the next hill,” Taylor continued.
The opposition was kicked off by controversy over the fact that the bill wasn’t heard by the House Taxation and Revenue Committee before being brought to the House floor for final passage.
Rep. Keith Gardner, R-Roswell, said the “sanctity of the committee process” was being damaged. “Our chambers are open to the public so that the public can come express their views,” protested Gardner. “…But we are denying them that right on this bill.”
These objections were brushed aside, however, as was an attempt to divide the measure into three separate bills.
Among a slew of amendments offered by Republicans, Rep. Larry Larrañaga, R-Bernalillo, offered one that would strip the food tax from the measure.
“Let’s not tax food, let’s leave that well enough alone,” he said.
But Speaker of the House Ben Lujan, D-Santa Fe, said the food tax was an important part of raising the revenue necessary to balance out the budget the House passed yesterday. And he clarified that the bill doesn’t impose a state tax on food—its only the local tax that’s being imposed.
“Nobody is in favor of taxing food, but we’re not imposing the state tax, this is only the local government gross receipts that’s been imposed,” Lujan said.
“It’s still a tax, any way you cut it,” Larrañaga replied, saying he has been getting droves of e-mails telling him emphatically to not tax food.
The amendment to strip out the food tax was tabled on a vote of 36 to 30, with six Democrats voting with the Republicans. Those Democrats were Rep. Giannini, Rep. Madalena, Rep. Rodefer, Saavedra, Stapleton, and Steinborn.
Democrats make hard compromises
Rep. Al Park offered a lengthy defense of the tax measure, saying the legislature finds itself in “difficult times, difficult days.”
The economy has been pounded by a global economic recession, leaving New Mexico reeling after years of excess revenues, he explained.
“These are not decisions I relish, but decisions I’m willing to make,” he said, explaining that in the package there are some items he likes and some he hates, but that the pain of the current economic moment needed to be spread across the board.
Some advocates who vigorously opposed the food tax initially say this was a necessary compromise so that deeper cuts to state programs and services weren’t made.
“We don’t’ like the food tax. We don’t like the GRT. We’re thrilled with the PIT add-back,” New Mexico Voices for Children Policy Director Bill Jordan told The Independent after the vote. “But the reality is that this package is probably the best they can do. There are a lot of progressive who don’t like the food tax and a lot of conservative Democrats who don’t like the PIT add-back, but we need both to raise enough revenue to avoid deeper cuts.”
Jordan said that in an ideal world the legislature would repeal 2003 income tax cuts that primarily benefited wealthy residents of the state, but that it’s unrealistic to expect the governor wouldn’t veto such a measure.
The Senate passed the revenue package yesterday, while the House has already passed a $5.35 billion budget, plus a tax increase on cigarettes. The Senate must now pass the budget measure, in order for the constitutionally mandated work of the legislature to be complete. The Senate would also need to pass the cigarette tax increase in order for the budget bill to be balanced with enough revenue.
Many speculate that the revenue projections that underlie the budget crafted this week are already out of date, and that new revenue projections in April or May will show that further tax increases or budget cuts will be necessary.
Trip Jennings contributed to this report.