Bill Co-sponsor Rep. Christine Chandler (D-Los Alamos)
New Mexico House Democrats News:
SANTA FE — Monday, long-needed reforms that make the state’s tax code fairer and that diversify New Mexico’s sources of revenue passed the House Taxation and Revenue Committee.
Sponsored by Representatives Christine Chandler (D-Los Alamos), Javier Martínez (D-Albuquerque) and Matthew McQueen (D-Galisteo), HB 291 expands two proven poverty-reduction programs in the state: the Working Families Tax Credit (WFTC) and the Low Income Comprehensive Tax Rebate (LICTR). The legislation reforms what has been a relatively flat tax structure in New Mexico, creating three new tax brackets for the state’s highest income earners.
It also ends tax breaks on second homes and removes the capital gains deduction for the sale of stocks, bonds, and businesses while still maintaining the benefit for the sale of small New Mexico businesses.
These changes will lift New Mexico families out of poverty, provide support for those hardest hit by the pandemic, and diversify the state’s sources of revenue, which are currently over-reliant on the oil and gas industry.
“For the last 20 years, we have been stuck with dramatic tax cuts for the wealthy and loopholes for large corporations, without any proof that they were helping our economy. We need a tax system that is fair and rewards hard work,” Rep. Martínez said. “This reform bill takes a tactical approach, implementing policies that have been proven to help families work their way out of poverty, stimulate spending in local economies, and protect New Mexico businesses and investments.”
“I am incredibly excited that the committee has endorsed this legislation. We know that the Low Income Comprehensive Tax Rebate and the Working Families Tax Credit help families work their way out of poverty and into the middle class,” Rep. Chandler said. “We know when lower-income workers have more spending power, they use it on essentials to support their families, stimulating the local economy at a time when it is sorely needed.”
“House Bill 291 continues our policy of protecting homeowners while ending tax breaks for second homes and vacation properties,” Rep. McQueen said.
The Working Families Tax Credit (WFTC) is the state-level companion to the federal Earned Income Tax Credit (EITC), a tax credit for low-income workers that 1 in 4 New Mexicans receive. HB 291 raises New Mexico’s WFTC from 17 percent of the EITC to 20 percent of the EITC. In New Mexico, tax filers typically only receive the WFTC for one or two years as they advance in the workplace and earn a higher income. 97% of those who receive the credit have children, making the program one of the most effective methods to reduce child poverty.
Similarly, LICTR provides crucial support to those who need it most, especially for low-income seniors who are able to claim additional tax exemptions through the policy. LICTR was designed to offset the regressive impact of the Gross Receipts Tax, however, it has not been adjusted to the cost of living in over two decades. HB 291 resets LICTR to the current cost of living, raising the qualifying income level from $22,000 to $37,000 annually.
New Mexico is an outlier, offering generous tax deductions and low tax rates to the highest income earners in the state. Today, a family earning $25,000 pays the same top tax rate as a family earning $250,000, despite their very different economic positions. HB 291 makes our tax code more equitable, investing in policies that promote prosperity for all New Mexicans, and generating a stable source of revenue as we look to decrease our dependence on the oil and gas industries.
An overview of HB 291’s main provisions is as follows:
- Increases the Working Families Tax Credit (WFTC) from 17 percent to 20 percent of the federal Earned Income Tax Credit
- Ends current exclusions from the WFTC for tax filers who use ITINs and for workers 18-24 years old.
- Expands the Low Income Comprehensive Tax Rebate (LICTR)
- Sets LICTR to the cost of living, allowing those who earn $37,000 or less a year to qualify. LICTR has been stagnant since 1998, even as the cost of living has increased.
- This would mean that many more New Mexicans would have access to relief at a time when so many are struggling to afford basic necessities.
- Helps reintroduce a graduated income tax structure by creating three new tax brackets for the highest income earners in the state.
- Unlike much of the country, New Mexico has had a relatively flat tax rate for decades. In 2003, taxes for the wealthiest New Mexicans were cut from 8.2% to 4.9% and the top three tax brackets were eliminated. Currently, a family earning $25,000 pays the same top tax rate as a family earning $250,000.
- HB 291 reintroduces three tax brackets but keeps income taxes lower than they were pre-2003. The new brackets are:
- 5.5% for individuals making between $135K and $210K; joint filers making between $200K to $315K.
- 6.2% for individuals making between $280K and $415K; joint filers making between $415K and $622K.
- 6.5% for individuals making more than 415K; joint filers making more than $622K.
- Ends subsidies for second homes like vacation homes and investment properties.
- Removes a property tax deduction on homes that are not primary residences, a policy that has overwhelmingly benefited the wealthy.
- Scales back the capital gains deduction.
- Limits the deduction to no more than $1,000 for most tax filers.
- The sale of a small business by a New Mexico business owner would still receive the full benefit of the capital gains deduction.
- Capital gains are the profits an investor gets when selling stocks, bonds, or businesses. Currently, tax filers can deduct 40% of this profit. The benefit of this deduction overwhelmingly goes to those making over $100K a year.
- New Mexico is one of only nine states where capital gains are taxed less than wages are.
House Bill 291 passed the House Taxation and Revenue Committee today on a party-line 7-5 vote, and will be heard next on the House Floor.
Members of the public can track legislation on the New Mexico Legislature website, access committee meetings and House floor sessions via the Webcasts tab, or participate by Zoom to provide public comment on committee hearings. During the 2021 Legislative Session, the House of Representatives is focused on passing critical legislation while protecting the health and safety of the public, the staff, and the legislators.