Jul. 22—New Mexico lawmakers, in the words of Senate Majority Leader Peter Wirth, D-Santa Fe, "have got ourselves in a really tough predicament."
Richard Anklam, executive director of the nonpartisan New Mexico Tax Research Institute, gave legislators a presentation last week showing what that predicament looks like — and how it is hitting consumers in the pocketbook and making it tougher for businesses to compete.
Testifying before the legislative Revenue Stabilization and Tax Policy Committee, Anklam said rising gross receipts taxes statewide over the last two decades have put extra pressure on weak points in the state's tax system. That happens in a couple of ways. First, the combined state and local GRT for some communities now exceeds 9%. In the part of Española that falls within Santa Fe County, consumers are paying 9.0625 cents on every dollar they spend on goods and services subject to the tax. In Taos Ski Valley, the GRT has hit 9.4375%.
In Albuquerque, it's 7.875%
"We've pretty much reached the absolute top of our capacity," Anklam told lawmakers. "It's problematic and deserves your attention." While people in some communities don't need an expert to tell them they are paying nearly 10 cents on the dollar in GRT, Anklam pointed out the higher tax rates exacerbate pyramiding — the way taxes build on each other in business-to-business transactions, such as when a shopkeeper hires an accounting firm to handle payroll.
Rep. Jason Harper, R-Rio Rancho, has tried for years to get rid of or significantly diminish pyramiding in the tax code, with some success in manufacturing and construction. But he says, correctly, "we are not serious about improving our economy until we tackle GRT tax pyramiding. It can raise the effective tax rate to 17%, and we wonder why a product is so much cheaper in Texas. It's because of the hidden taxation."
And guess who ends up paying for those "stacked" taxes in the end? The consumer, one way or another.
Part of the double whammy of sky-high GRT stems from the repeal of the GRT on food in 2004. That had the effect of significantly narrowing the tax base — making it especially difficult on rural communities and small cities that lack the tax base to pay for critical services, like pay for police officers.
While politically popular to say we don't tax food, the net result of the repeal was low-income people pay higher taxes on everything else they buy, from shoes to diapers. The Legislature let cities and counties raise their GRT rates to more than make up for the food tax they lost without going to voters. (Bernalillo County, for example, missed out on $16.5 million in 2017 because the food tax had been repealed. But it received $8.064 million in "hold harmless" money that year, plus an extra $43.347 million from its higher GRT. Bottom line: In 2017 consumers in Bernalillo County got a tax break of $16.5 million that cost them $51.411 million.)
"In New Mexico, we've narrowed our base, and we've raised our rates," Anklam said. "The less (items) you tax, the higher rate you have to tax it at to get the same amount of money. That's been our policy history for the last 15 to 20 years."
Wirth, who unsuccessfully pushed for tax code changes last year, said part of the problem is it costs about $68 million a year to reduce the state GRT (currently set at 5.125%) by just one-eighth of a percentage point. "We put all these pieces in play," he said, "and you can barely move the needle."
Wirth said lawmakers will have to "think big" to address the GRT system. And Sen. Ron Griggs, R-Alamogordo, said lawmakers "need to suck it up and figure out how to fix" it.
It's good to see some bipartisan recognition of the problem, because we are at or near "the absolute top of our capacity."
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.