Monday, December 28, 2009

Santa Gave, But Does The Taxman Take Some Away? Plus: Gov't Growth: Mostly Bloat Or Not? Also: Getting It Or Not In Old Santa Fe 

All 70 state House seats are up for election in 2010, voters in several New Mexico locales recently rejected bond issues and the economy is still flat on its back. Given that backdrop, we're not shocked to hear increasing reluctance from legislators when it comes to tax increases. This is in spite of a gargantuan state deficit that needs to be closed and estimated to be $600 million for the budget year that starts next July 1 and perhaps much more.

A proposal to reinstate the gross receipts tax on food purchases is being greeted with withering criticism as it would hurt low income and unemployed New Mexicans the most. Also, a vote for it could easily be transformed into a hot button campaign issue. House Dems in particular are treading carefully, knowing that primary challenges in this volatile environment can sprout as quickly as dandelions.

That doesn't mean lawmakers will completely skirt "revenue enhancement." There is a sense among veteran political analysts that the myriad of tax credits that are on the books and that cost the state hundreds of millions annually may be the most likely target for revenue raising. Backers of the generous film industry tax credit are especially tense as lawmakers search for revenue options that don't incite the voters or their potential opponents.


Big Bill would probably veto any increase in personal income tax rates, but his 2003 tax cuts for the wealthiest New Mexicans are coming under intense scrutiny because of the pronounced inequality between rich and poor households that arose this past decade. From the AP:

New Mexicans with the most money--the top 1 percent of taxpayers, who earn $395,000 or more--paid about 5 percent of their income in state and local taxes in 2007. That compares with almost 11 percent for those in the lowest income group...

But the ABQ Chamber of Commerce remains insistent that the Richardson 2003 tax cuts for the rich should stay. A spokeswoman:

The changes that were made in the income tax are part of a bigger plan to create an environment in New Mexico which brings high-wage jobs to the state for people who live here...As we make decisions about the budget, we ought to do that very carefully or we will roll back any possible progress that we can make to create high-wage jobs here when this economy turns around..

The problem for the Chamber and others continuing to advocate for these historically low tax rates for the rich is that there is no proof that they have spurred the creation of any of those promised high paying jobs and we've had the low rates for six years.


While we're on the subject, lawmakers might also want to finally look at the very generous treatment of capital gains--sales of stocks and bonds and other assets--in NM. From The Institute on Tax and Economic Policy:

New Mexico is one just nine state offering a significant tax break for capital gains income. The state allows an exclusion equal to the greater of $1,000 or 50 percent of net capital gains income. This tax break costs the state as much as $51 million in 2008; repeating it would help ease New Mexico's budget woes, make its tax system fair, and keep valuable dollars in the state economy.

In casual conversation with a wide range of acquaintances, it is clear that there is populism in the air. But in Washington it appears to be drowning in a cascade of special interest influence. Wall Street remains in pleasure while Main Street remains in pain. In New Mexico, the same resistance to this populism---a reaction to a decade of economic imbalance--also is being manifested. But if state lawmakers are looking for tax hikes that would actually enlist popular approval, they may want to consider the tax brackets on the state's upper crust and the generous treatment of profits generated from stock and bond sales.


One of the questions readers raise about The Richardson 59--the list of the Guv's political appointees being let go--is how the dismissals help the state balance its budget. That's the stated goal of the Legislature in ordering the reduction in "exempt" employees. For example, readers are asking whether some of the appointees let go at Workforce Solutions were paid with federal funds. If they were, they say that doesn't help balance our state budget. And they ask the same about politicals being let go in January from NM Expo. The budget there is largely generated by the state fair and other income, not from general fund. We don't have a firm answers off hand, but we hope to get some.


Blog reader Nat Chakeres weighs in on a recent post here quoting defenders of the 50 percent increase in state spending that has happened under Big Bill since 2003. They argued that a portion of the increase was because of a lack of government spending prior to his term. Nat agrees, and adds:

...One thing that is being overlooked is the state's growth during that time period. A bigger population and a bigger economy require more government spending for services and regulatory oversight. According to UNM's Bureau of Business and Economic Research, New Mexico's economy grew, accounting for inflation, by 39% between 2003 and 2008. That puts the 50% growth in the state budget into some perspective.

Whatever the appropriate rate of spending during the Great Bull Market, the Great Recession has ended the debate. Cutbacks--painful ones--are inevitable.

GOP Guv candidate Susana Martinez isn't one of those buying into the argument outlined above:

Whether it’s rewarding political cronies with ‘soft landings’ or using taxpayer dollars for political activities, Diane Denish and this administration have grown state government by more than 50% and in the process, abused the public trust. As governor, I will end the giveaways and favors, eliminate programs that don’t work, and restore sanity to the budgetary process...

But exactly what programs would Martinez and the other R's eliminate to save hundreds of millions of dollars? They have yet to say. And it is essential to the debate to note that just about every Republican in Santa Fe voted for the growth in the state budget since 2003. Does Martinez also see them as having "abused the public trust?"

We recently blogged that Santa Fe City Council candidate Russell Simon, 27, seemed to get it that recession ravaged Santa Fe needs a vigorous discussion of its future economic options in the upcoming March city election. But Simon's call for Santa Fe to have its own electric utility, replacing PNM, drew fire from reader Gary in Taos:

I'm not sure Simon from Santa Fe does get it. Santa Fe needs a diverse economy, one that does not rely so heavily on tourism and the service industry, and certainly one that does not rely on utilities for income. Santa Fe needs new business and new jobs that are less service and retail oriented. This is a terrible idea. So when Santa Fe needs more income they can simply raise electric rates? I suspect as an environmentalist, Simon has other reasons to get his hands on PNM's electric business in Santa Fe.

We did not note Simon's proposal to have the city of Santa Fe take over PNM in our original blog. Like Gary in Taos, it could give many Santa Fe voters reason to pause.

Simon is trying to unseat incumbent Councilor Chris Calvert who also faces a challenge from state tax processor Doug Nava. Here are the other Santa Fe council and mayor candidates.

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