By BILL SELLERS
Formerly of New Mexico
The latest 2021 budgetary analysis for New Mexico, population 2.06 million, shows an annual state budget (FY 2021) of $7.22 billion, including unspent reserves of some $816 million. These monies were collected from the following 6 main sources: the Gross Receipts Tax, Severance Taxes, Rents & Royalties, Interest Earned, “Other” and Personal & Business Income Taxes.
This last category, the personal & business income tax, contributed some ~23% to the total, and depending upon how lousy tax-year 2020 shakes out, may come in under $1.0 billion collected.
Meanwhile, New Mexico’s State Investment Council (SIC) manages some $28+ billion of unencumbered funds, derived largely from oil & gas royalties, and invested on Wall Street. It is America’s 3rd largest “sovereign wealth fund” (after Alaska & Texas), according to the international Sovereign Wealth Fund Institute.
These SIC funds and their earnings, exclusively earmarked by constitutional amendment, are used as supplements to New Mexico’s extensive & highly bloated public-education employment system. Which—-given the state’s incredibly poor private sector performance outside the oil patch (where the O&G funds originated), has managed to educate substantial numbers of NM graduates that left. Mostly for better employment opportunities in Arizona, Texas, and Colorado.
So, let’s cut to the chase.
If New Mexico, which is not some incredibly isolated, cold, barren, inhospitable place, but very much the exact opposite, wants to remain poor & dependent, the option here is to do nothing. Talented, smart, and ambitious young people will continue to leave, families will continue to be broken-up, businesses large & small will suffer & close, outside investment will go elsewhere (as usual). The only economic sector showing any potential will be that of more & more government employment, and low value-added administrative work.
If on the other hand, smart leadership for the state would look around, post-COVID, they’d see the world is rapidly set to change. America’s high-cost, high-tax states are losing significant numbers of talented people. Even China; the Asia Times recently reported more than 1,400 Japanese companies are leaving for other parts of Asia and North America. NY, Illinois, and California’s losses are well documented, just ask Elon Musk, who left for zero-income-tax Texas.
Yet, New Mexico’s workforce metrics are notoriously bad, as bad as her cultural xenophobia north & east of the Sandoval County lines. Seriously, outside the oilpatch, and other than the military & Dept. of Energy, who wants to invest there?
So how to fix this sad, sad situation? Aside from government and subsurface minerals, poor little New Mexico is holding no high cards. But she’s keeping $28+ billion on Wall Street to make sure state government employees, who’ve created this mess, stay employed and well-fed. How perverse is that?
The Cure: use half the SIC funds, appx. $14 billion to transition to a completely zero-income tax regime. This is doable. It’s a simple concept, but it’s not easy. That money, which belongs to all New Mexicans, “buys” New Mexico, all things being equal, some 8-10 years to transition, and to zero income taxes on a permanent basis.
“Public Education” still gets its supplemental feed from the trough, but it’s reduced by half. Moreover, in 10 years there’s a good chance these SIC royalty funds will have rebuilt 100%.
Being one of a handful of booming US states with zero income taxes—would put poor little New Mexico in an exclusive club, and for the first time in a long, long while, play to her strengths. The xenophobes in Northern NM and in Santa Fe’s notorious welfare plantation would have a cow, for sure. They really hate organic economic growth.
Editor’s note: Sellers, a former New Mexico resident 20+ years, was on the Board of NM Assoc of Commerce & Industry. He now lives in Oro Valley, Ariz.