New Mexico’s state and local tax system is already unfair—with the lowest-income New Mexicans paying a rate double that of the highest income earners. A so-called ‘Flat Tax’ or consumption bill, such as the one introduced in the 2013 legislative session by Rep. Tom Taylor (HB-369) and Sen. William Sharer (SB-368), would make the tax system even more regressive. That’s according to a report by New Mexico Voices for Children.
Since similar legislation is already being discussed for the 2014 legislation session, staff members from the child advocacy group will release the report today at the Revenue Stabilization and Tax Policy Committee hearing in Room 307 of the state Capitol in Santa Fe. James Jimenez, Director of Policy, Research and Advocacy Integration, and Bill Jordan, NM Voices’ Senior Policy Advisor/Governmental Relations will give a presentation on how legislators can use tax policy to improve child well-being.
“Enacting a consumption tax like the one considered last session would be a step in the wrong direction in terms of child well-being,” said Gerry Bradley, NM Voices’ Senior Researcher/Policy Analyst and report author. “The consumption tax—which is also called a 2 percent or flat tax—sounds fair because the sales tax rate is lowered. But it would have a detrimental impact on low-income families—and the state tax system already leans more heavily on them as it is. It would also very likely generate less revenue for programs like education, health care, and public safety,” he added.
The consumption tax legislation in question would eliminate both the personal and corporate income tax, lower the state gross receipts tax (GRT) rate from 5.125 percent to 2 percent, and then broaden it by applying it to wages and salaries. Refundable tax credits for low-income families would also be eliminated. Unearned income, such as capital gains—which overwhelmingly goes to those at the top of the income scale—would not be subject to any tax.
“Our income tax is the only part of our tax system that is progressive—meaning it relies less on those with the lowest incomes. Even so, the lowest-income New Mexicans pay more than 10 percent of their income in state and local taxes, while those at the very top pay less than 5 percent. The income tax only partially offsets the regressivity of the rest of the tax system. The GRT is particularly hard on low-income families because they must spend their entire monthly wages just to get by, while higher-income families can save some of their income,” Bradley said.
The report, “The 2 Percent Disaster,” and its executive summary are available online at: http://www.nmvoices.org/wp-content/uploads/2013/12/Flat-Tax-Report-web.pdf and