New Mexico on the Verge of Enacting Large Tax Increase

Last week, in a 40-25 vote, the New Mexico House of Representatives approved a package of tax hikes that would impose new burdens on thousands of middle class taxpayers and consumers. This legislation, HB 6, now moves to the Senate for consideration, where Democrats hold a significant majority. If approved by the upper chamber and signed into law by the newly inaugurated Democratic governor, it would be one of the largest tax increases in New Mexico history.

As it stands, New Mexico’s tax structure features four income brackets, ranging from 1.7 percent to a top rate of 4.9 percent on all income earned over $16,000. HB 6 would amend the tax code by adding three additional brackets while increasing the top marginal rate to 6.5 percent on income earned over $200,000. While proponents claim this is a tax increase on the wealthy, middle class taxpayers wouldn’t be spared from this change thanks to rate increases on earned income over $23,500. According to the Fiscal Impact Notice from the independent Legislative Finance Committee, single filers earning $45,000 annually and joint filers earning $90,000 will be hit with a higher state tax burden. The Committee also estimates these higher rates will generate an additional $120 million annually in new tax revenue.

Here’s a look at what the current tax structure compares to the one proposed under HB 6:

Worse yet, individual income tax hikes harm job creators as thousands of small businesses choose to file as individuals and are subject to the individual income tax, rather than the corporate income tax. To that end, many small businesses would therefore be exposed to a higher rate. Higher taxes are an added cost, and businesses are likely to pass on new costs onto consumers in the form of increased prices for goods and services, or having to lay off workers, slash hours, or scale back plans for growth.

On top of the middle class and small business income tax increase, HB 6 is jammed full of regressive tax increases that will directly harm consumers. HB 6 raises the cigarette excise tax from $1.62 to $2 per pack, increases the tobacco products tax from 25 to 45 percent, expands the tax treatment of tobacco products to e-cigarettes and other vapor products, and increases the motor vehicle excise tax.

Thanks in part to a large windfall from federal tax reform in 2017 and surging revenue from strong energy production, New Mexico ended its last fiscal year with a $1 billion budget surplus. If current projections hold, it is likely the state will have an even larger surplus for the upcoming fiscal year, making any call for more taxes unnecessary. Some lawmakers have called for higher taxes to diversify its revenue sources due to the volatility and unpredictability of energy taxes. There is certainly an argument to be made there, but simply hiking taxes across the board, while simultaneously harming taxpayers and economic growth, is not a sound approach.

Earlier this year, NTU penned a letter to New Mexico lawmakers urging them to oppose HB 6. From our January 28 letter, we write “Adding to the tax burden would only exacerbate some of the structural economic woes by further straining family budgets, thus inhibiting growth. State residents are hungry for comprehensive tax reform, and this legislation is the last thing your constituents need. Accordingly, we encourage you to keep these concerns in mind as you hopefully work toward a more fiscally responsible future for New Mexico taxpayers and consumers.”

We continue to urge lawmakers to avoid hiking taxes and instead engage in meaningful efforts to reduce tax burdens for all New Mexicans. The state has a strong history of tax cuts, and lawmakers should look to that history instead of current plans.