What State Tax Cuts for the Wealthy Really Cost Us

 

Did you know that our poorest New Mexicans pay more than twice the percent of their income to state and local taxes as do the wealthiest New Mexicans?  Do you want to learn more about the true cost of tax cuts to the wealthy?

Tax Cuts for the Wealthy.  Since 2003, income tax on our wealthiest New Mexicans have been cut almost in half. Cumulatively, these tax rates amount to about $500 million a year, or roughly double the projected deficit for 2016-17.

Capital gains taxes tax deduction.  What are capital gains?  This is the income mostly wealthy people make in investments, something that most of us don’t have to worry about. So while the income tax rate has been cut by almost half, in addition, wealthy individuals can then deduct half of their capital gains taxes from their state income tax, decreasing their ‘fair’ share still more.

Over-Use of Regressive “Invisible” Taxes.  Sales tax, gross receipts tax, and gasoline tax are examples of ‘regressive’ taxes.  Regressive taxes are those that are paid at equal rates, no matter what your income or wealth.  You pay these taxes whenever you spend money and the poor spend almost all of their income on gas, food and other commodities. As a result, almost all of their income is not only taxed as income, but it is then taxed again when it is spent. The chart at left from New Mexico Voices for ChildrenWho-pays-web (1), depicts graphically how it is that our poorest New Mexicans pay double the percent of their income in State and Local taxes as do those at the top end of the income scale. The bold blue bar shows the total percent of income paid in all taxes, the light blue shows the percent of taxes paid in sales taxes and other regressive taxes. The far left set of bars is for people earning under $17,000 and the far right set of bars is for people earning over $323,000. As you can see, the dark blue bar shows that our poorest residents pay over double the percent of their income to state and local taxes as the wealthiest New Mexicans (over 10% to less than 5%).  The chart loses definition when excerpted from the source article, so to view the article in full, click here.

And what  do New Mexico citizens ‘pay’ because our wealthiest escape these taxes?  In a recent post by James Jimenez, Executive Director of NM Voices for Children, How Tax Cuts for the Powerful Are Behind the Backlog, Jimenez points to several impacts:

  • Poor maintenance of our roads, bridges and other infrastructure;
  • Backlogs in tax refunds due to inadequate staffing;
  • Backlogs in review of rape kit DNA samples in thousands of rapes cases;
  • Delays in processing of applications for food and healthcare assistance as well as in processing of applications for medical marijuana licenses.

And of course, the costs go well beyond this, there is our shameful underfunding of early childhood education, K-12 education, behavioral health services, and our cutting of the state’s contribution to Medicaid, an issue that will be discussed in full in a future blog as each cut in State Medicaid results in loss of federal Medicaid. Cumulatively, the failure to fund these programs and services adequately has shredded our social safety net.  And research shows that when people do not access preventive services or when the safety net fails them, they wind up using more costly emergency services.

The budget crisis is not just about money; it is about people and our State’s priorities. If we want New Mexico to invest in new sustainable economic development, provide affordable early childhood education, expand access to healthcare and mental health services, and improve our K-12 public school system, we have to pay for it. Reversing tax cuts for the wealthy is a good place to start.  Retake the Roundhouse will be watching the next legislative session very closely to monitor how our representatives behave in relation to this critical issue.

 

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