Tax Policy in New Mexico

Guest blog provided by Alicia Manzano. Alicia is the Outreach Director at New Mexico Voices for Children and also leads the New Mexico Fairness Project.

In her June 29 column, “Apples and Activism,” Sherry Robinson dismissed a proposal to close a New Mexico tax loophole that only benefits profitable out-of-state corporations. One of the main problems with her column is that she demonstrates a basic lack of understanding regarding what the proposal—called mandatory combined reporting (MCR)—actually does and does not do. It does not allow New Mexico to tax the profits a company makes in another state. That would be illegal—and the legality of MCR, which has been adopted by most other western states, has been upheld by the Supreme Court. That said, it’s hard to give much credence to the rest of her assertions—particularly her argument that our state’s corporate tax rate is too high. An Ernst and Young study released earlier this year showed that New Mexico’s effective tax rate was among the lowest in nine of our western state neighbors.

In addition, Winthrop Quigley, a business writer for the Albuquerque Journal, recently pointed out that when studies take into account the effect of New Mexico’s wide range of tax incentives, our state’s effective tax rate shrinks by more than 62 percent. The devastating impacts of so many unfair and ineffective loopholes also mean cuts to essential programs and services like education.

When it comes to comparing our state budget to other states, we found especially troubling a report on MSNBC a few weeks ago that listed New Mexico as #1 in the country for “states cutting the most to schools and cities.” Beggaring our schools and infrastructure undermines the foundation for future job growth.

These realities are re-igniting a conversation among New Mexicans about our state’s budget priorities. It has become increasingly hard for defenders of trickle-down economics to justify loopholes and tax breaks that only benefit the wealthiest and big, profitable corporations. That goes for the 2003 state income tax cuts that gave a huge tax cut to New Mexicans in the top income bracket, while providing New Mexicans in the bottom 40 percent with no tax reduction.

The old trickle-down dogma has repeatedly failed. The legacy of both the Bush and New Mexico’s failed tax cut polices for the top 1 percent are plain to see. A sagging economy coupled with the increased transfer of wealth to the richest New Mexicans leaves the rest of us to ponder the value of those tax breaks as vital services are cut and teachers, police officers, and firefighters are laid off.

How much bigger can New Mexico’s class sizes get as teachers are let go? How much longer can we stretch public safety response times due to under-funding for police and firefighters? How much more disinvestment can Main Street New Mexico handle before their small businesses close up shop? How many more hungry children will be turned away from underfunded summer lunch programs? How many more thousands of our toddlers will end up on a child care waiting list?

The executive’s refusal to close this tax loophole, along with the veto of important transparency measures, only harms our ability to make smart decisions regarding our state budget. New Mexicans deserve transparency and hard data about the job creation effectiveness of tax breaks, like those enjoyed by out-of-state corporations.

In tough times like these, New Mexico’s wealthiest 1 percent should be contributing their fair share. New Mexicans also deserve to know how out-of-state corporations have gamed New Mexico’s tax system while not being held accountable for promised job creation that never happened.

At the end of the day, New Mexico needs a tax system that exemplifies the values of fairness, transparency, and accountability.