New Mexico contemplates tax hike to underwrite education

By MORGAN LEE, Associated Press
SANTA FE, N.M. (AP) — The New Mexico House of Representatives was poised to vote Friday on changes to the state tax code that would increase some personal income tax rates and impose new taxes on e-cigarettes, nonprofit hospitals and online sales.
The Democrat-sponsored tax bill was designed to trim the state government's dependence on income from the oil sector and shift tax burdens toward higher earners.
Democratic Rep. Javier Martinez of Albuquerque, a lead sponsor, says the promised benefits of prior income tax cuts in 2003 and 2013 never materialized and that reforms are needed to underwrite improvements to public education and roads.
Republican legislators say it does not make sense to raise taxes when the state has a budget surplus. The bill as written would increase revenues by more than $300 million in the coming fiscal year.
Economists expect state income to outpace general fund spending obligations by $1.1 billion for the fiscal year starting on July 1, as oil production grows at a rapid pace. They also warn that the financial windfall could quickly evaporate because of volatility in world energy markets.
The tax proposal would create several new personal income tax brackets, while raising the maximum rate from 4.9 percent to as much as 6.5 percent for individuals who earn $200,000 a year or more or joint filers earning $300,000. It would also double a tax credit for families with children to offset tax increases caused by the 2017 federal tax overhaul.
Not accounting for the credit, an individual earning $45,000 would see uptick of $11 in tax obligations to $1,348, according to projections from the Legislature. The estimates show that married joint filers earning $45,000 each would see a 2 percent tax increase of $56, for a total tax bill of $1,842.
By contrast, a business executive earning $350,000 would see a 21 percent tax increase, raising obligations by about $3,100 to $19,800.
The legislation also would pave the way for state and local governments to levy taxes on sales by online retailers, increase taxes on tobacco, initiate taxes on e-cigarettes, and require nonprofit hospitals to pay the same taxes on sales and services that other hospitals pay.
Lawmakers are facing pressure from a district court judge to increase resources for public education — the outcome of a lawsuit by parents and school districts who say public education has been starved of resources to the detriment of students from low-income and minority families.
In response, Democratic Gov. Michelle Lujan Grisham has proposed a half-billion dollar increase in annual spending on public schools. Top Republican lawmakers say the increase is too much and too quickly, for a state where government income fluctuates wildly in concert with the oil industry.
Martinez called the current tax system "inherently inequitable," and said tax cuts made by former Democratic Gov. Bill Richardson in 2003 did not live up to expectations for creating jobs and economic growth. Currently, the top personal income tax rate applies to individuals earning $16,000 a year or more.
In a statement, House minority leader Jim Townsend of Artesia called the proposal a "massive taking from working families."