ALBUQUERQUE—A new study released today by the Institute on Taxation and Economic Policy (ITEP) ranks New Mexico 17th in the nation in terms of having an unfair state and local tax system. This means that 33 states have tax systems that are considered more equitable than ours.
The study, Who Pays?, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes. New Mexico is among the states with a high negative tax inequality index—meaning its tax system actually increases income inequality because those who earn the least amount of money pay the highest tax rates.
New Mexicans earning less than $17,000 pay a tax rate of nearly 11 percent while those earning more than $330,000, pay a tax rate of less than 5 percent, on average.
“The whole point of the tax system is so that we can build the infrastructure our society and economy requires—the roads and highways that allow us to move goods to market, the schools that educate our future workforce, the first responders who keep us safe. Everyone benefits from these systems, but we don’t all pay into them equitably,” said Veronica C. García, executive director of New Mexico Voices for Children, which is partnering with ITEP on the release of the report. “Those who earn the lowest incomes should not be paying the largest percentage of their meager paychecks for the infrastructure that we all need and use,” she added.
Corporate tax cuts enacted in New Mexico in 2013 are shifting even more tax responsibility onto those with the lowest incomes. The cost of that legislation is being passed on to cities and counties, which are raising their gross receipts tax (GRT) in order to make up the lost revenue. The GRT, which is a tax on goods and services, falls hardest on families who earn the least money because they must spend a greater percentage of their income on items that are taxed.
There’s a very practical reason for New Mexico and all states to be concerned about tax systems that place a lower effective tax rate on the wealthy, according to ITEP. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy—and the lower a state’s tax rate on the wealthy—the slower a state’s revenue grows.
“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”
The full report is available online at www.whopays.org.