In 2001, the New Mexico Legislature changed the tax code to dramatically lower the tax rate for our state’s highest income earners. The premise for this tax break was to attract executives that would bring businesses with good-paying jobs to the state. As far as I can tell, we haven’t seen any benefit to this tax break. What we have seen instead is the loss of nearly half a billion dollars in revenues to the state’s general fund every year.
This was fine while our state’s coffers were getting fat from a petroleum industry enjoying crude prices reaching nearly $150 per barrel and the economy was humming along in pre-recession mode. With the change in our economy, we can no longer afford a nearly $500 billion loss in revenues every year with the drop in crude oil prices from their high one year ago. The outlook for our state’s revenues for the current fiscal year and beyond is not in the positive.
The Albuquerque Journal recently ran a story about our state’s projected $300 million budget shortfall. The story discussed various cost-cutting measures the state could implement to make up for the shortfall. What also was discussed, but as an unlikely alternative, was to roll back the 2001 tax break for the highest income tax bracket.
I disagree. I think rolling back income taxes to pre-2001 rates only makes sense. Back in 2001, I opposed this change in the tax code because I saw it as loss of revenues our state could not afford. Every year since, I have offered a bill that would turn back the clock on this tax break to tax rates prior to 2001. This last legislative session, the Legislative Council estimated that my bill (SB 508) would have created an additional $224,460 in revenues for fiscal year 2010 and $459,320 for fiscal year 2011.
It doesn’t take a math wiz to see that this change back to the way we taxed prior to 2001 makes more sense today than ever.