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
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