New Mexico's tax credit for businesses that create high-wage jobs was front
and center in a recent report about tax policy gone wrong.
The incentive cost the state $9.3 million in 2011, but quintupled to $48
million last year, according to the Pew Center report "Avoiding Blank Checks."
"That might have been a positive development if it signaled an economic
boom and showed the credit was working," the report stated. "Instead what
happened is that businesses were learning they could claim a credit for jobs
they had created years earlier without knowing about the tax credit."
Specifically, companies were allowed to go back and claim up to $12,000 for
employees that had already been on the payroll as far back as seven years. "It
meant some companies were receiving a financial benefit for something they
would have done anyway," Pew concluded.
Passed in 2004, the high-wage tax break -- and hundreds of others still
on the books in New Mexico -- is now being scrutinized by the Legislature as
part of a move to reduce the state's corporate income tax. The tax breaks
include the back-to-school sales tax holiday passed in 2005; the GRT exemption
for newspaper sales passed in 1969; as well as renewable energy breaks and
sales tax breaks for private hospitals, and others. Reducing or eliminating
some of the tax breaks would raise enough money to reduce the tax bracket on
businesses.
Santa Fe Democrat Rep. Luciano "Lucky" Varela says it's a way to meet
Gov. Susana Martinez halfway in her effort to reduce the income tax on
business and make New Mexico more competitive. "We need to broaden the GRT
across the board, then lower the corporate rate. We need to look at tax breaks
that were granted but never sunset. Let's compromise," he said.
Gov. Martinez and Economic Development Secretary Jon Barela said the
highest corporate rate should be reduced to to 4.9 percent from 7.6 percent so
it equals Arizona.
In a presentation last week to the Santa Fe Chamber of Commerce, Barela
said there is more urgency now as both Louisiana and Florida are considering
eliminating the corporate income tax altogether. And Kansas, Oklahoma and
Virginia are looking at reducing income taxes and cutting narrow tax
exemptions in favor of boosting the more broad-based sales taxes, according to
The New York Times, which said the issues characterized "a debate over what
kind of tax system most encourages -- or least discourages -- growth in a
21st-century economy."
The corporate income tax raises $350 million a year for New Mexico's
general fund, which pays for education, health, courts, criminal justice,
public safety and other government services, but it is still a small percent
of the $5.9 billion state operating fund.
"I think we need a sense of urgency in creating economic opportunities in
this state," Barela told Santa Fe business leaders. "We need to get in the
ballgame."
But estimates released this week indicate the cost to the general fund
will be $131 million when the corporate income tax measure is fully phased in
after three years. The other big initiative by the governor is a so-called
single-weighted sales factor tax, where companies can choose to be taxed on
just a portion of their operations. Both of those combined will cost the
general fund $220 million when fully phased in, according to the Department of
