By JAMES JIMENEZ
New Mexico Voices for Children
We can build the kind of New Mexico we all want – one where children receive a world-class education and jobs pay a family-sustaining wage – but it means everyone must do their part.
That means having a stable and equitable tax system – one that asks the most from those who have the most and raises the money we need to educate our children and make the other investments that help drive our economy.
Tuesday’s meeting of the Revenue Stabilization & Tax Policy Committee included a sobering reminder of the urgent need to find more stable revenue, but it also provided cause for hope – by reforming an unstable, inequitable tax structure, New Mexico can better serve the state’s children and future.
The findings presented in a new report from state finance experts, PFM Group Consulting, make clear New Mexico’s tax system is failing to meet both the state’s needs and the Legislature’s tax policy principles of adequacy and equity. It also calls out the state for its chronic over-reliance on oil and gas revenues.
The report, State of New Mexico Tax Structure: Key Issues and Alternatives, finds that “New Mexico has greater economic and revenue volatility and less ability to ‘bounce back’ from economic and revenue shocks than most other states.” Some of this is due to the oversize reliance on volatile oil and gas revenue.
That volatility impacts New Mexico’s children more than anyone. Faced with significant revenue shortages during the last recession, policymakers cut support for K-12 and higher education and shorted other services that are critical to the development of our kids and a well-trained workforce.
While the pandemic has brought unprecedented challenges, it’s time that we stop accepting this instability as inevitable. PFM’s report offers policy recommendations to better align with state tax principles and ensure resources are available to support the education and health care our children, families, and small businesses need to thrive in a 21st century economy. Many of the report’s recommendations are included in NM Voices’ policy priorities.
Chief among these is repealing income tax cuts for the wealthy, including the enormous deduction for capital gains income, as well as reinstating the estate tax on those with the most wealth. None of these tax breaks brought any benefit to the state – no new jobs or influx of rich people – but they did make us far more reliant on oil and gas.
Not only would these changes make our tax system – and the money it raises for our schools, infrastructure, and more – far more stable, they would also make it much more equitable. As it is now, the smaller your income the larger the share of it you pay in state and local taxes, while those at the very top pay a much smaller share of their income in these taxes. And since big disparities in income exist along racial and ethnic lines, this means our tax system falls most heavily on New Mexicans of color, while more of the benefits of past tax breaks go to white New Mexicans.
The PFM report is yet another wake-up call for New Mexico to diversify its revenue sources and begin to move New Mexico in the direction of a more stable, equitable, and diversified tax and revenue system and build a more prosperous future for our kids, families, and small businesses.