MLK, Jr., Rev. William Barber & others have noted that our state & national budgets are moral documents. NM Voices for Children published an extraordinary report on the connection between NM state fiscal policy & institutional racism. Read on.
Today, we offer our Retake Conversation immediately below, followed by an examination of how we can fix our NM state tax and revenue system. We close with a poem from William Butler Yeats that was offered in comment from Tracy Neal and a video from Frontline on the history of institutional racism. We will begin offering information from Frontline on an ongoing basis. We need to keep informed and build our deep understanding of the forces we find in the streets in Washington, but also in the halls in Washington.
2021 Legislative Session Update
Senator-Constituent Zooms: We continue to hold constituent-Senator zooms and by all accounts–from constituents and Senators– these are going very, very well. We are finding out more about our Senators’ priorities and they are learning from us. Senators are explaining where they don’t know enough about specific bills and constituents are feeding them info on those bills. Every single Senator has said that they were impressed with this process and welcomed reconvening once the session begins. Why? We are establishing important legislator-constituent relationships and having civil discussions. I have to tell you that I think this may be the single most impactful strategy Retake has initiated. We had over 70 constituents who met with Senator Gonzales and now those constituents are scheduling Zoom conversations with their House Reps, Kristina Ortez and Susan Herrera. If you want to sign up to join a Senate District team, click here. If you want to see our schedule of upcoming Zooms with Senators, click here.
Grant County Commissioner Harry Browne has placed his resolution condemning Yvette Herrill’s vote to challenge the electors from Arizona and Pennsylvania on the agenda for the January 14, 2021 meeting of the Grant County Commission. The agenda allows for public input, and Commissioner Browne welcomes it. email@example.com. Retake will send an alert to our Grant County supporters this weekend or Monday to alert them to this effort. If you don’t know him, Harry Browne is one of those tremendous local elected officials who are not afraid to stand up for climate, racial or social justice. We need to raise our voices nationally, but we also must support our local leaders who are courageously standing up to this wave of white supremacist vitriol and violence.
Retake Conversation with Margaret Brown Vega and Nathan Craig, two members of a NM-based coalition, People Over Private Prisons and advocate for HB 40, a bill that would prohibit the state from entering into new contacts for private prisons and prohibiting renewal of existing private prison contracts. The discussion lays out the history of private prisons in NM, how poorly they care for prisoners and how much more expensive it is to privatize the prison business. HB 40 is one of Retake’s Priority Bills for the 2021 session.
News in Briefs. Here is the good news. Some leaders & institutions are FINALLY taking a stand.
- From New York Magazine: “Feds Arrest Pro-Trump Insurrectionists Around the Country” You will be happy to know that the guy with his feet up on Pelosi’s desk is now in jail, along with an increasing number of his pals.
- From CNBC: ” Twitter permanently bans Trump from Twitter ” Can you imagine how Trump is roiling around in agony at having no outlet for his imperious impulses. It is a scary time, but it does seem things are shifting. FINALLY. Don’t be grateful, be relieved and encouraged.
- From CNN: “Democratic momentum builds for potential fast-track impeachment next week” . There is building momentum to get this done, with an impeachment bill being introduced on Monday with a vote by midweek. One of the charges is “incitement for insurrection.” Seems about right to me.
- From The Washington Post: “Twitter warns of new violence to come, brewing again on social media, as reason for Trump ban” The article is full of pretty frightening social media communiques that indicate that a Jan 17 Militia rally at state capitols across the nation and a Million Militia March on the White House to prevent the inauguration from occurring.
NM Budget & Revenue Policy: A Failure That Needs to Be Fixed… And in 2021, We Can Make a Big Advance
Today’s exploration of NM tax policy, will draw upon two primary sources. We begin our discussion with the opening paragraphs of a draft report being developed by two members of Retake Our Democracy’s Transformation Study Group, Terry Storch and Rich Weiner. We also rely heavily upon a report completed by Paige Knight, MPP, from NM Voices for Children: “Tax Policy: A Powerful Tool to Address Racial Equity in New Mexico,” and other resources on the Voices website. We begin with the opening and closing paragraphs of Storch and Weiner’s report which does an excellent job of framing the discussion to follow.
“To paraphrase Justice Oliver Wendell Holmes, taxes are the cost of living in a functioning society. Taxes are also a fundamental expression of community. They pay for many things that we take for granted, such as education, roads, bridges, broadband, health care, public safety, and a basic safety net for our many impoverished residents, including children. We need sufficient revenue to cover these expenses. How often do we say we cannot afford necessary expenses after ineffective and unnecessary tax cuts were passed?
Taxes should be allocated in a fair manner and be perceived by the public as being fair. That generally means that those who can afford higher taxes pay more. A “flat tax” –a tax in which everyone pays the same percentage of their income — might seem fair, but it really is not. Suppose everyone were to pay 10% of their income in taxes. A person who makes $500,000 can much more easily afford to pay $50,000 in taxes than can a person with $20,000 in income pay $2,000. Higher-income people have more disposable income than do low-income people living from paycheck to paycheck. That is the basic concept behind the graduated – or progressive – income tax. The higher the income, the greater the percentage of that income is paid in taxes. Tax brackets are the mechanism for graduating the tax. New Mexico’s tax structure suffers from both inadequacy of revenue and unfairness in tax allocation. In 2003, shortly after the U.S. Congress had passed two large tax cuts that primarily benefited the wealthiest taxpayers, New Mexico Governor Bill Richardson followed suit.
Taxation, as a revenue generator, cannot be divorced from other key sources of revenue relied upon by New Mexico. Royalty income from oil and gas comprises a large portion of the overall state revenue. Prices for oil and gas, however, fluctuate for many reasons, and New Mexico has experienced a serious decrease in oil and gas revenue due to Covid-related reduction in prices and demand for those commodities. It is unwise to rely so heavily on an industry whose revenue fluctuates so wildly.
The state gets caught in a bind when it needs to raise revenue during a downturn in the economy, but then faces difficulty in mustering the political will to raise taxes. Adding to budgetary stress, there may be considerable delay between legislating a tax increase and when that increase goes into effect. We should cease telling ourselves that having a surplus means that we should return that surplus to the taxpayers. We need the surpluses for years, like 2020, in which there is a deficit. Stability is key.”
A History of NM Tax Giveaways
Storch and Weiner noted that New Mexico’s cuts to a range of forms of taxation began in 2003, but, in truth, NM joined the national purging of our taxes during the Reagan era. From NM Voices for Children:
“Property and Personal Income Tax Cuts in the 1980’s
In 1981, property taxes were limited and personal income taxes were cut by 25%, then by another 33% in 1982. This is an example of how powerful interests, especially those representing extractive industries, have used their power to limit the revenue needed to support schools, local governments, and state government and shift the state to a higher reliance on the gross receipts tax.”
Below we provide excerpts from NM Voices for Children a chronology of NM’s retreat from funding our state:
More income tax cuts
In 2003, the top three personal income tax brackets were cut, benefiting only the highest-income earners in the state. This made our income tax system essentially flat. These cuts also included a 50% deduction for those with capital gains income – the money people make selling assets like stocks and real estate – which overwhelmingly benefited the very wealthiest New Mexicans.
Elimination of the estate tax
New Mexico used to have an estate tax – a tax on high-dollar property (like cash, real estate, or stocks) inherited from someone who has passed away – but due to federal tax changes in 2001 it was eliminated and never restored. The loss of the estate tax has reduced our ability to make public investments that foster economic growth while allowing wealth inequality to grow.
Corporate income tax cuts
In 2013, large corporations received a big and unnecessary tax cut, while New Mexicans were promised that it would attract new businesses – a promise that failed to materialize. We have lost important revenue that could have been invested in what actually benefits businesses, like an educated and skilled workforce, modern and robust infrastructure, and a market for their goods and services.
Special carve-outs from the gross receipts tax
Numerous carve-outs for the well-connected and big industry interests have resulted in a dwindling base for the gross receipts tax, which lawmakers have addressed by increasing the overall rate substantially. This harms families with low incomes the most because they pay a greater share of their income in gross receipts taxes. And because policymakers have chosen to cut taxes for the people and corporations who can most afford to pay them and not tax concentrated wealth, our state and local governments have had to rely more heavily on this regressive tax to fund community investments.
These failed fiscal policies have resulted in significantly less revenue, meaning less investment in progress and in our communities.”
What is the impact of these tax cuts?
As a result of decades of changes in our tax policy, NM now has one of the most regressive tax systems in the country. The chart below show how our poorest New Mexicans pay a far higher proportion of their income in state and local taxes. This situation must be completely reversed. And as this post illustrates, below, there are some very specific steps available to the state to do just that.
Note that the outgrowth of our regressive tax policies are any number of intentional decisions to not tax the wealthy or large corporations sufficiently. You can’t gut our sources of revenue and expect to sustain any semblance of the necessary levels of services, supports and infrastructure upon which New Mexicans rely.
We do not have adequate infrastructure in rural and tribal communities because our lawmakers prefer to give tax breaks to the wealthy than to fund running water, safe roads, and internet for rural and tribal NM.
We do not have the capacity to monitor methane emissions, and other environmental hazards because lawmakers have chosen to safeguard gas and oil profits and offer other corporations tax breaks rather than fund staff positions that could safeguard our land, water and air.
NM had to be forced to adequately fund our failing education system by the Yazzie-Martinez Supreme Court decision. The failure to adequately fund public education is another manifestation of systemic racism. And education is not the only area where our lack of political will to generate sufficient revenue is harming our children. Our failure to adequately support our children and families is why NM ranks 48-50th in most every economic, health and social indicator, as revealed in NM Voices for Children’s excellent Kids Count report. And in NM, 76% of our children are children of color and so our failure to address the needs of our children is also turning a blinds eye to how those tax policies are fundamentally racist, whether intended as such or not. These are intentional decisions, not accidents; they are choices made by our elected representatives. From NM Voices:
“The racial and ethnic disparities that exist in our communities today are not due to happenstance. They are the direct result of institutional and systemic racism and the discriminatory policies that have determined who does and does not have access to income and wealth-building opportunities. Throughout history, people of color have had very little power in all levels of government, which has allowed white lawmakers to set policies that benefited themselves while deepening the challenges that people of color faced, whether those policies were explicitly race-based, or not.”From NM Voices: “Tax Policy: A Powerful Tool to Advance Racial Equity in New Mexico.”
Voices then goes on to outline a series of tax policies that could make substantial inroads toward addressing these overtly inequitable and covertly racist tax policies.
Fortunately, NM has NM Voices for Children, is an organization with a moral conscience that also has the acumen to assemble an array of policies that are driven by ethics and an intention to address racial and economic inequity by ensuring the wealthy and well-connected pay their fair share. Below are an array of options that legislators and the governor have to advance equity in NM. Below is a series of policy options from which the legislature can choose, all extracted from Voices’ excellent website.
Options for Increasing NM Revenue
Each of the following policies could be part of House Bill 2, which is the full tax and revenue bill which winds up being assembled in the last days of the session. Part of our advocacy will include educators on the wisdom of being receptive to the majority of these bills.
- Reinstitute a PIT rate structure with higher marginal rates at higher income levels.
New Mexico was one of several states that experimented with lowering top rates in the last 20 years to help attract high income households and stimulate economic development. However, there is little evidence from New Mexico or other states that this strategy was successful. Restoring top tax rates would make the overall structure more equitable while raising needed revenue.
- Eliminate the capital gains PIT exemption. Higher income earners obtain nearly all the benefit from this exemption. Eliminating this exemption will improve revenue adequacy and equity.
- Reinstitute an Estate Tax. This tax is paid by high wealth individuals, most of whom have been high income earners. It is one method for dealing with the issue of a ‘stepped up basis’ for assets. This is one of the few existing wealth tax options and will improve revenue adequacy and equity.
- Increase the Motor Fuel Tax rate. Excise taxes are an important component of an
overall tax structure, and motor fuel is one of the ‘big three’ (with tobacco products and alcohol) of traditional excise taxes. New Mexico’s state motor fuel tax rate is among the lowest in the country. This will improve revenue adequacy.
- Establish a structure for taxing recreational marijuana. New Mexico has yet to
legalize recreational marijuana, but the national trends and significant efforts during recent state legislative sessions suggest this is likely to happen in the near future. Prior to the November 2020 general election, 11 states had legalized recreational marijuana. In the November 2020 election, an additional four states legalized recreational marijuana through voter initiative – Arizona, Montana, New Jersey and South Dakota. Arizona joins Colorado as New Mexico border states that have legalized recreational marijuana. Many states that are now legalizing marijuana are doing so because of its revenue potential – a
recognition that its use via the black market is prevalent, and the state would benefit from regulating and taxing it. Current tax structures vary considerably, with tax collections ranging from $13 to $67 per capita. Tax collections in the range of $50 per capita for New Mexico would raise approximately $100 million a year.
- Broaden the GRT tax base to again include food AND couple it with a refundable PIT tax credit for lower income taxpayers. Besides prescription drugs (which every state exempts) the deduction for food sold at retail is New Mexico’s largest GRT expenditure. The general fund revenue loss is compounded by the ‘hold harmless’ payments the state makes to local governments to compensate them for a portion of their lost GRT revenue as a result of the deduction. This arrangement is unique to the “food and medical” deduction. While the GRT deduction for groceries seems logical from a tax equity standpoint, the exemption applies to all taxpayers – higher income earners purchasing filet mignon get the same benefit as lower income households buying hamburger, and higher income households get the largest share of the benefit. There is a more targeted way –the existing refundable tax credit for low income earners should be expanded to replace the GRT taxes paid by low income New Mexicans. In this way, the GRT base is expanded and those with the ability to pay do so. This would greatly improve revenue adequacy and, when coupled, make the overall structure more progressive.
- Resist the temptation to increase the State GRT rate. The New Mexico combined
average state and local rate ranks as the 15th highest among all states (when compared to state and local combined sales tax rates). While this is already above average, the overall GRT taxable base is much broader than nearly every other state sales tax base. As a result, measures that take into consideration both the GRT rate and base rank the New Mexico consumption tax effort among the highest of any state. When considering state and local sales/gross receipts tax collections per capita, New Mexico ranks ninth highest. On sales/gross receipts tax breadth (the ratio of the sales tax base to personal income), New Mexico ranks third among the states. Given these factors, raising the GRT rate would be a major negative for equity and should not be considered.
- Continue to expand excise taxes to align with new goods and forms of services.
The economy continues to evolve and has become more focused on what is referred to as the ‘sharing economy.’ To date, New Mexico has done a good job of modifying its tax structure to account for this activity. It will need to continue to do so to maintain revenue adequacy in the future.
- Shift greater local funding responsibility to the property tax and away from the GRT. Nationally, the property tax is the predominant local tax revenue source, but in New Mexico, it is the GRT. This heightens some of the negative effects of this tax. While the State’s history and reluctance to use the property tax are understandable, there are mechanisms that can be put in place to reduce its negative effects. Broadening the overall tax base would help improve tax adequacy and reduce volatility.
- Undertake a regular evaluation process for all state business incentives. The State forgoes significant tax revenue for certain businesses and industries. While this is not unusual among the states, it is also considered a best practice to regularly review and evaluate these specific tax incentives. While New Mexico does a semi-annual tax expenditure report, it does not provide the level of detail necessary to determine the efficacy of these incentives. The Pew Charitable Trust does a regular evaluation of states’ incentive evaluation processes and groups them into ‘leading, making progress, or trailing’ categories. New Mexico is classified as trailing. Developing a regular evaluation process would advance the efficiency tax principle and might lead the state to eliminating or reducing the use of incentives that do not provide a net positive economic or revenue impact for the state.
- Incent industry entry for renewable energy technology and processes. New Mexico enjoys multiple advantages related to renewable energy sources, particularly for wind and solar. These industries also have great job creation potential and will help the state’s economy shift from a reliance on oil and gas.
- Leverage the State’s anchor institutions to capture the benefits of agglomeration economies and industry clusters. The State greatly benefits from two national research universities and national laboratories. While these are already a key driver for the State economy, they should get greater attention when the State identifies the resources it will dedicate to its economic future.
- Expand well-paying, middle-skill manufacturing jobs through targeted job training and workforce intermediaries. As in the prior recommendation, the State will best benefit and create a more effective tax and revenue structure by targeting resources toward expanding ‘middle-skill’ jobs. Its current incentive and appropriations-based programs should target these approaches.
If you want to take a deep dive into NM state tax policy, you can examine Voices’ “A Guide to NM’s Tax System, it lays out both the historic context that delivered us the situation described above.
We will continue to this issue several times between now and the session.
A prophetic poem share with Retake by Tracy Neal
The Second Coming
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
William Butler Yeats
Ted Talk on Racism and Police Reform
We write about racism all the time. In this 12-minute video find out how police racism can be addressed. And this talk has implications in so many contexts. Very worth your time.
The video below is from Frontline, a coalition of leadership from communities of color and Working Families Party. It does a deep dive into the history of efforts to advance racial equity in America.
In solidarity and hope,
Paul & Roxanne
Categories: Tax Policy