New Mexico’s Tax System :. How It Works and Why It Matters to You. A Good Tax System Should:. Provide stable, adequate revenue to consistently fund state services; In a manner that is: Balanced (promotes stability) Fair (distributes the burden broadly)
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How It Works and Why It Matters to You
Thirty-eight states levy three general taxes: property, sales and income taxes. The “three-legged stool” approach to revenue policy is generally consistent with good tax policy principles.
Sales & excise tax
Sales and excise taxes
FY 2003 Revenue = $3.9 B
FY 2007 Revenue =
The percentages of taxes that contribute to state revenue changed in important ways from 2003 – 2007:
Changes in the Stable Sources of State Revenue 2003 and 2007
In 2003, Personal Income Taxes were a greater share of revenue. The impact of the PIT 2003 tax cuts can be seen in the 2007revenue pie. In addition, the state eliminated estate taxes. GRT taxes also declined some, and the reliance on “unstable” revenue sources increased.
Changes in the Unstable Sources of State Revenue 2003 and 2007
Oil and gas growth impacts several areas of state revenue, including rents and royalties, severance taxes and Corporate Income Taxes that are levied on companies that are oil and gas related. Corporate incomes taxes have risen from $100 M in 2003 to $400 M in 2007. Nonetheless, changes in the corporate tax laws to tax ALL businesses doing business in NM would be a good source of revenue. (Called “combined reporting”).
(1) by creating the “general fund budget” which appropriates money for the state agencies; and
(2) through tax expenditures– these are laws that provide exemptions, credits or deductions from taxes. The most familiar “tax expenditure” is the deduction for mortgage interest. If the state did not allow this deduction, then it could collect more taxes – thus, the mortgage deduction is an “expenditure” of tax dollars. Many of the laws allowing tax expenditures are never reviewed by the legislature once they are passed, so the expenditures continue year after year.
General Fund Spending dollars that are collected:($5 Billion for FY 2007)
All State Services Are Funded By Taxes:
To Maintain Current Levels Of Services dollars that are collected:
State Spending Must Increase By At Least 7% Each Year
In addition to spending money on the state agency budgets – or the general fund budget – there are tax expenditures – credits, deductions and exemptions from the tax base.
Summary: Exemptions and Deductions from NM Gross Receipts and Compensating Taxes
What’s left after the tax expenditures is the revenue that makes up the state general fund.
We need to look at the whole picture – tax expenditures as well as the general fund spending.
Adequacy: and Compensating Taxes
A tax system should generate adequate, stable revenue to consistently fund state services
Because of the PIT cuts in 2003 and the heavy reliance on extraction taxes,our tax system is no longer stable and adequate.In coming years, if revenues are not enough to support state spending….
Taxes Must Be Increased extraction taxes,
OR … extraction taxes,
Services Must Be Cut
We can examine our tax expenditures to make sure they meet our public policy goals.
Fairness extraction taxes,
A tax system should distribute the tax burden broadly, with those in higher income brackets paying more
The personal income tax cuts extraction taxes,
reduced the tax burden of New Mexico’s wealthiest citizens while benefiting middle class and lower income families very little or not at all.
State Income Taxesbefore and after full phase-in of tax cuts
Reduces the overall tax burden on the richest 1% of Americans by over 12%
While the bottom 20% of Americans receive only a 3% tax reduction.
Reduces state income taxes for New Mexicans in the top tax bracket by over 30%
Provides no tax relief at all for the bottom 20% of taxpayers.New Mexico’s tax cuts mirror recent federal cuts
A Tax Expenditure Report
What is it? A report prepared annually by the tax and revenue department, detailing the tax expenditures, and their costs.
Why is it a good idea? Because the legislature and the public need an accountability system for tax expenditures, which should be part of the budget debate process.
How much will it cost? The tax department would do this report, so the cost should be minimal.
What is it? A credit, or payment, that low income working families get when they file their taxes.
Why is it a good idea? Upper income tax payers received huge state and federal tax cuts, and a state EITC would help low income earners, making our tax system a little more progressive.
How much would it cost? At 10% of the value of the federal EITC, it would cost about $37 M.
What You Can Do Americans by over 12%
Educate (colleagues, members, policymakers, the media, neighbors)
Advocate for fair, adequate and transparent tax policy. This session, argue for tax expenditure reports so we know how much the credits, deductions and exemptions cost us.
Talk to your legislators (to find out who your representatives are and how to contact them go to Get Activeat www.nmvoices.org