The Albuquerque Business First took the bait.
Despite speculation of a potential budget deficit facing lawmakers in this legislative session, Governor Martinez used her State of the State address this week to applaud herself for cutting taxes.
“Our tax rate on manufacturing has been cut by 60 percent – to the lowest in the region!”
“And our taxpayer friendliness score has soared from a “D” to a “B” – and we’re nearing an “A.” – Gov. S. Martinez, State of the State, Jan 19, 2016
Then she went on to list more tax cuts she wants to make.
Following that speech, the conservative Tax Foundation released it’s rankings of state tax rates.
The ABQ Business First followed by reporting “The percentage ranks New Mexico as the 37th-highest in the U.S.” in 2012 numbers (the last numbers available and the last year before the big tax breaks took effect. The
But that perspective is misleading.
New Mexico isn’t 37-th highest (of 50). It was 13th-lowest in the country, and it was that before slash and burn tax policy helped limit the contributions of corporate citizens whose draw on public resources is equally impactful.
Worse, the group behind the study created it’s own way of determining each state’s “tax burden” on citizens. Under their weird math, they guess how much money New Mexicans spend in other states, factor in tax rates there (which state and local policy makers can do nothing about) and assign those taxes to New Mexico, too. Sound funny? It is.
From the Tax Foundation report:
“Because tax collections represent a tally of tax payments made to state and local governments, they measure legal incidence only. In contrast, our tax burdens estimates use a geographical incidence model to allocate taxes to states that are economically affected by them. As a result, the estimates in this report attempt to measure the economic incidence of taxes, not the legal incidence.”
Notice all the “red flag words” that should be an indication that this may not be as legit as it seems. “Estimates.” “Attempt to measure.” Yea.
But the conservative “think tank” behind this report has an agenda: cut taxes everywhere no matter how useful.
And the state’s premier business news outlet took the bait by adopting their language which suggests that we have an abnormally high tax burden that must be lifted.
Who pays taxes (and how much) matters. A Lot.
New Mexico has a big budget problem.
With 1/3 of the state budget tied to revenues from oil and gas production, state revenue estimates have fallen from a projected $300 million surplus announced last summer to a flat or negative revenue forecast facing legislators this January.
Relying on oil and gas revenues are dangerous because of the volatility in the market. New Mexico supplements that revenue with other items, like sales tax (called gross receipts tax in NM) corporate income tax on businesses who use public resources like roads and police to produce, transport and protect their business. The idea here is that everyone pays their fair share.
Gerry Bradley, an economist with New Mexico Voices for Children, provides this analysis
General fund growth was almost $400 million in FY12 but then fell to -$100 million in FY13. Revenues from the CIT, on the other hand, have risen smoothly since FY12, and are expected to increase slightly through FY15. The CIT helps to stabilize general fund revenues and this is a feature that policy-makers should be aware of when thinking about making changes that could destabilize this revenue source.
But the stability from these non-oil and gas revenues has eroded under the Martinez administration as they have prioritized their “race to the bottom” tax policy agenda, trying to out-tax cut other states to prove their Republican bona fides.
In 2012, the governor ushered through a last-minute omnibus tax package that dramatically reduced corporate income tax – and dramatically decreased revenues to state funds providing education, public safety and essential government services.
Again, NM Voices for Children:
The bill’s post-session fiscal impact report showed these two changes to the CIT were expected to cost $32 million in FY15, $71 million in FY16, and $111.6 million in FY17.
Lawmakers looking for money to fund schools, public safety and basic healthcare would really like to have that $111 million cushion this year – and so would the corporations who rely on us to educate, nurse and train their workforce.