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Friday, March 05, 2010

Food Tax: Can It Undo Dems? Special Session Aftermath Analyzed, Plus: More On Santa Fe's Tax Plans For You 

In 1994 it was a six cents a gallon tax on gasoline that became the rallying cry for a disaffected electorate and a marginalized Republican Party. They had enough punch to throw Democrat Bruce King out of the Governor's office. Fast forward to 2010 and history could repeat. The two percent tax on food approved in the Special Session of the NM Legislature that concluded Thursday has all the ingredients to spark yet another voter revolt and perhaps again help deliver the Governor's office to the Republicans. (The AP wrap on the special is here.)

Every political consultant worth his reel of 30 second TV spots warned that the food tax is lightning in a bottle, and coming in a year when populism is rising and incumbents of every stripe are ripe for tar and feathering, it could very well tip the political balance come November.

Big Bill can hear the footsteps if not yet see the pitchforks of the hungry crowds. He said upon conclusion of the four day session:

I deeply regret that revenue increases became an option. I am especially concerned that the Senate insisted on including a food tax, which is regressive and hurts working New Mexico

Richardson has 20 days to decide whether to veto the food tax, but he may be boxed in. It would raise over $60 million to help put in balance the budget for the year that starts July 1.

SAY WHAT DI?

Lt. Governor Diane Denish has said she is against the partial reinstatement of the tax on food, but as she did when the regular session of the Legislature concluded, she issued a statement about ethics, not the economy, when the special session ended. She said she was having a news conference to sign a "sunshine" bill into law. Not a peep about the food tax and whether she will urge the Guv to veto it.

But ignoring the elephant in the room has never made it go away and Denish and the Democrats are now not only exposed on the ethics issue, but ready to be had on the issue that will ultimately decide the Guv race--the economy.

Legislators made a tepid move toward sharing the budget pain with the highest wage earners in the state (who, by the way, will mostly be voting Republican) but it doesn't appear to be enough to fade the heat over their taxing of the working classes that compromise the heart and soul of the state Democratic Party. (Besides the food tax, lawmakers approved a 1/8 cent increase in the overall gross receipts tax which hits lower income earners more than higher earners.)

In December, former GOP Chairman John Lattuzio wrote to us of that 1994 election year. His words bear repeating because we could have some political Déjà vu:

A campaign was created by the NM GOP to repeal the six cents per gallon gas tax. My best estimate of the total cost was about $1,000. Just prior to the election, a barbecue was held in Belen that attracted close to 1,000 people. They all raised their hands and joined the ‘Posse’ organized to defeat the ‘Gas Tax Gang. The campaign was driven by the party faithful, and received more earned media for a campaign of this type than I had ever experienced.

Henry Ford once famously said: "History is bunk." Perhaps. But that doesn't stop it from repeating.

GRADING THE SESSION

The regular 30 day session of the Legislature that sputtered to an end Feb. 18 produced no state budget for the first time in a quarter century. It fully deserves an "F" for failure. The four day special gets a D, not an F, only because they passed a constitutionally required budget. But it is faith-based budgeting. It assumes state revenues will grow by 6 percent in the year that begins July 1. But no one believes it, and another special session appears to be right around the corner when state revenue projections show the state economy to be flat on its back.

If we are going to make prayer a central tenet of state budget planning, the least the Santa Fe pack could do is own up to it and call in the Hopi snake dancers for help in making it rain dollars from our turquoise colored skies.

HUNGRY PACKARD

We did take notice that a $6 million cash outlay to Hewlett-Packard made its way from the lawmakers and on to the Guv's desk. That's to help the computer giant open up its Rio Rancho call center where it says it will employ over a thousand. With HP having $12 billion in the bank and the state facing a $600 million shortfall, you might think the corporate giant would have thrown the state a bone by rejecting this latest round of millions. Okay, stop that chuckling.

TAX MAZE

We're going to talk a little taxes here. Now, come on. I can see your eyes glazing over. But reader Carol Nordengren made a point here yesterday of saying the elimination of a tax deduction aimed at increasing the tax on earners making over $100,000 would cost her over $300, even though she makes a third of that. While Carol would pay more, other readers say she would not be on the hook for as much as she calculates:

Reader and attorney Helen Hecht, tax counsel for the Federation of Tax Administrators, reacted to Carol's email in DC and came with this:

The provision (approved in the special session) would require that a taxpayer who itemizes add back the state income tax that is deductible for federal tax purposes before computing tax on that income for NM. The reader said she made 1/3 of $100,000 in (taxable) income...Her NM tax amount would be a maximum of $1,355 using tax tables from last year to calculate her tax, assuming she is single. (You have to use the tax tables because NM's tax rate ranges between 1.7% and 4.9% and that makes a big difference here.)

That $1,355 is the amount that she can deduct for federal tax purposes and that she would have to add back for state tax purposes. Since the incremental tax rate (for income over the $33,333) would be 4.9%, the additional tax on the $1,355 add back would be $66, not $308.

Since she's paying slightly more in state taxes, she would get a slightly greater deduction for federal tax purposes next year and would end up paying a little less in federal taxes as well so the actual out-of-pocket amount would be something less than the $66.

Contrast this with someone who has $100,000 in taxable income. Their state tax add-back would be about $4,618. Their additional NM tax would be $226, about three and a half times more than what the reader would pay.

And Richard Anklam of the NM Tax Research Institute also concluded, like Helen, that Carol would owe in the $60 range, not over $300. He emailed:

Make no mistake, the add-back is a tax increase...but the vast majority of states require the add back of state taxes. The argument is the Fed’s don’t allow you to deduct federal income taxes paid, why should the state allow you to deduct state taxes? It’s also progressive in that it’s tied to state income taxes paid, which is of course tied to income. The more you make the more likely you are to itemize. The more you benefit from that the more you’ll be impacted by the proposal.

Thanks to Helen and Richard for the tutorial (we feel like we just were forced to eat our Brussels Sprouts).

Middle income Carol will still end up with a slight tax increase. although not as much as she feared. Wouldn't it have been more equitable for the Legislature to have adopted a surcharge exclusively on only high wage earners? Or increase slightly the tax rates on the wealthiest taxpayers that were rolled back so much in 2003? The answer is yes and yes.

THE BOTTOM LINES

More reaction to the the news this week that Big Bill is under consideration to become the million dollar a year CEO of the Motion Picture Association of America. Bill claimed he wasn't interested, that he's going to tour all the major league baseball stadiums when he is done being Guv. From the email:

I really don't think Big Bill is going to have much to do with Hollywood, big bucks and all. I think he wants to tour baseball stadiums throughout the country because he has his eye on becoming the Commissioner of Baseball. Big Bill wants to go out with a bat and glove in his hand, not some movie tickets!

Thanks for your company this week. Let's do it again soon.

From Albuquerque, I'm Joe Monahan reporting.

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(c)NM POLITICS WITH JOE MONAHAN 2009
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