New Mexico gov. eyeing business tax cuts to spur economy
Image has not been found. URL: http://images.americanindependent.com/New-mExico-roundhouse-360.jpgOfficials in the Martinez administration say they are considering cutting taxes on small business gross receipts and corporate income as a means of creating jobs in the state.
The tax on gross receipts averages at about 7 percent throughout the state. One proposal being considered would eliminate gross receipt taxes for business with a tax liability under $200 a month, which could benefit about 40,000 businesses in the state.
Finance and Administration Secretary Tom Clifford said revising the state’s corporate income tax code was also an option under consideration, including changes to rules governing how much of mult-istate corporations’ income is taxed.
Using state-level tax cuts that aren’t offset with other taxes as a way to create jobs sometimes backfires, particularly at a time when state budgets are already considerably weakened.
As a June report from the Center for Budget and Policy Priorities says, “in the early 2000s, as in the early 1990s and early 1980s, state fiscal problems lasted for several years after the recession ended. The same will undoubtedly be the case this time, since the current recession is more severe…than the last one, and state fiscal problems have proven to be worse and are likely to remain so.”
The report estimates that New Mexico’s total budget shortfall this year has been about 9.1 percent of the $5.5 billion general fund, about $492 million, which is proportionately smaller than most other states’ shortfalls. Of that, $333 million was closed in the budget adopted by the Legislature earlier in the year, and the remaining $159 million has arisen since then.
Taxes on gross receipts supply about a third of the state general fund, much of which goes to fund public education. New Mexico’s public schools are disproportionately funded by the state government, as most other school systems primarily rely on property taxes at the local level.
And although total government employment in New Mexico has actually increased since the start of 2007, in the past two years the state has lost some 3,600 government employees, according to Bureau of Labor Statistics estimates. Further spending cuts to offset business tax cuts will most likely cause additional loss of government jobs.
But Clifford suggested that tax reform could be phased in over time so as to minimize its impact on revenue.
New Mexico’s budget was initially protected from the worst of the recession because a large proportion of the state’s general fund comes from gas and oil revenue. But economists have said that the revenue from energy taxes is likely to be smaller than initially projected, which has meant that the Legislature will have less “new money” to work with during next year’s session than originally thought.