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Finance and Administration.

State Sen. George Munoz, a small-business owner and developer, has been a strong supporter of Barela's efforts and is the prime sponsor of the measure in the Senate (Senate Bill 277). With federal budget cuts going forward later this year, Munoz, a Gallup Democrat, also feels the urgency. "Our economy is going to go in the tank," he said. "There's not just one single thing that's going to change the economy of New Mexico," adding that the Legislature and governor need to move together to make New Mexico more competitive.

Still, Munoz said Martinez's tax bill is unlikely to pass without offsets that protect the general fund. He and other senators support a measure by Peter Wirth that passed the Legislature last year, but was vetoed by Martinez. It would require companies to report all their sales from out-of-state affiliates to New Mexico for taxation -- a concept known as combined reporting.

Wirth, D-Santa Fe, has a bill this year (SB 13) that again incorporates both the corporate tax cut with combined reporting as a way to level the playing field for all businesses -- smaller family-owned firms and larger companies that come from out of state.

"There have been general discussions about a corporate tax reform package which would include combined reporting and elimination of other exemptions to offset the fiscal impact of a straight rate reduction," Wirth said in an email. "While there is a real opportunity here to broaden the tax base and lower rates, we need to be extremely careful about the fiscal impact."

New Mexico has hundreds of tax credits and exemptions that have been on the books for years. The high-wage jobs credit for jobs that pay $60,000 or more a year is one example of one that was put in place but never closely monitored, according to the Pew report.

Richard Anklam, executive director of the New Mexico Tax Research Institute, said the credit for high-wage workers was always flawed because it lacked a time limit on when employers could claim the money for the new job. There were failed attempts the last two sessions to fix that, which in turn brought more attention to the problem, which resulted in more claims on the money.

"It's not a secret anymore. The fixes didn't happen, so the problem got worse," he said.

A bill introduced by state Sen. Phil Griego, D-San Jose, is aiming to get the fixes right this session. Griego's bill (SB 211) specifies that any job receiving the high-wage credit must be created in the same tax year it is being claimed and the position must be an added job, not one replacing someone who left or a contract position. Is also specifies the credit can't be claimed for jobs that result from a merger or acquisition. And the Griego bill mandates that the job be in New Mexico -- not just for a company based here with offices elsewhere.

The changes would reduce the credit by $4.2 million a year, and Gov. Martinez supports it, said Angela Heisel, a spokeswoman for the Economic Development Department.

But Barela told the Santa Fe Chamber that he does not want to see the tax cut become a "balloon squeeze," where businesses get broad-based tax relief and then nickel-and-dimed in other costs.

He sees the general fund making up the shortfall with more business recruitment and growth.

But Varela and others are skeptical. "That's not going to happen overnight. How long does it take?" he said. With the high-wage tax credit, "we underestimated the impact substantially. How do we make up those dollars?"

Still another bill (SB 59) by Sen. Carlos Cisneros, D-Questa, does it all. He suggests incorporating all the corporate income tax changes from Gov. Martinez and Wirth and then repealing the major credits, including the high-wage credit, the rural-job tax credit, the investment credit, the technology-jobs tax credit and the research and development small-business tax credit. There are some $1 billion in tax breaks or credits now on the books. The measure would seek to eliminate many, and in turn lower the brackets for everyone.

Anklam said tax reform often gets done when elected officials want to do something significant -- as Martinez is proposing now. But it's extremely difficult to do the detail work amid a legislative session.

For instance, the personal income exclusion for 50 percent on capital gains -- one of the breaks being analyzed by House Democrats -- was put in place by former Gov. Bill Richardson with the goal of making the personal income tax rate more competitive with other states. And when there are proposals to eliminate or change the tax breaks, lobbyists and industry executives show up to work against that.

"There are pros and cons to every exclusion you have out there," Anklam said, but "there is often no time or energy or bandwidth to do it in the middle of a session. It sounds like someone threw some ideas out there to get a conversation going."

And any revenue measures still need to get past Martinez. "Our high-wage jobs credit bill will substantially improve targeting of the credit, which will effectively reduce the fiscal impact," said Tom Clifford, Finance and Administration chief for the governor. "Other than that, we are not proposing any revenue raising provisions."

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