SANTA FE – Republican lawmakers proposed Thursday to significantly revamp New Mexico’s governmental finance system by relying more on taxing people and businesses on what they consume and spend rather than the income they earn.
Rep. Tom Taylor and Sen. Bill Sharer, both of Farmington, outlined their proposal Thursday but conceded it’s a work-in-progress and not fully clear how the tax burdens of individuals and businesses will change.
“It may overtax some areas, and we need to understand all of that before we cast this thing in stone,” Taylor said.
Sharer called it a “hard reboot of the New Mexico tax system.”
The proposal would greatly expand what is subject to New Mexico’s gross-receipt tax, which applies to sales of many – but not all – goods and services.
Most groceries and food staples are tax exempt currently, but that would end under the proposed overhaul. Sharer said the tax would apply to “virtually everything that happens” in the state.
By broadening the tax base, the lawmakers propose to reduce the tax rate and eliminate most other taxes, including the state’s corporate and personal income taxes.
However, income earned by individuals would be subject to what the lawmakers liken to a “consumption tax.” Corporate income would not be subject to tax under their proposal.
The lawmakers call for a 2 percent tax rate imposed by the state and an additional 1 percent could be levied by cities and counties, which rely on gross-receipts tax revenue to finance their operations.
The lawmakers said their proposal will keep severance taxes on oil and natural-gas production, property taxes and taxes on gasoline, which help finance roads.
Under their tax overhaul, they said, the state and local governments should collect about the same amount of revenue as they do currently.
An economist for a social-advocacy group said the proposed changes likely would make New Mexico’s tax system more regressive and potentially move a greater share of the overall tax burden to individuals and away from businesses.
“When you’ve taken tax off from a group of people that doesn’t consume all of their income and put it onto people who consume all of their income, it’s pretty much guaranteed to be regressive and shift the tax burden,” said Gerry Bradley, research director for New Mexico Voices for Children.
Taylor said the proposal will offer tax refunds for low-income New Mexicans.
The GOP lawmakers said the current gross-receipts tax provides far too many deductions and exemptions, which has narrowed the base that is subject to taxation.
“The point here is the gross-receipts tax is broken,” Taylor said.
The gross-receipts tax varies from place to place in New Mexico, ranging from about 5.1 percent to nearly 9 percent. The tax currently generates more than a third of the state’s revenue. Personal and corporate income taxes provide about a fourth of the money that flows into the state’s main budget account.