New Mexico needs to revise its tax code

New Mexico’s legislators will soon be making critical decisions about funding essential services, including education (which accounts for about 57 percent of the total budget).

While the latest revenue estimates indicate the state’s finances are not as challenging as was anticipated during the 2020 special session, the pandemic has focused attention on significant inequities across the state in the delivery of education, health care and Broadband. As a result, there are calls for more attention to these issues.

About 84 percent of New Mexico’s total annual revenue of almost $8 billion comes from taxes. Although we sometimes hear taxes described as a burden which no one wants to pay, most of us do value government services ranging from libraries and education to streets and highways, police and fire protection, city and state parks.  We all have an obligation as members of the community to contribute to the common good.

Based on studying state government revenues, including taxes, the League of Women Voters supports a tax system which is progressive, meaning those at higher income levels pay a larger percentage of their incomes in taxes than those at lower income levels. The League also supports a tax system through which deductions are based on promotion of equity and yet revenue is sufficient to meet essential needs.

Data assembled by New Mexico Voices for Children show our state income tax is progressive but not sufficiently to overcome the regressivity of our other taxes such as gross receipts (broad-based consumption tax) and property taxes.

Overall, the 60 percent of New Mexicans with the lowest incomes pay 10 percent or more of their incomes to support state government while those in the top 5 percent pay less than 7.5 percent of their incomes. It is critical to a more equitable system that we shift more of the tax burden to those who can better afford it.

For example, several recent evaluations of our tax system suggest moving in this direction by reversing the income tax rate reductions enacted in the early 2000s for New Mexicans at the highest income levels.

Another aspect of state finances that may be discussed during the session involves the Land Grant Permanent Fund. Under the state constitution, a percentage of the five-year average balance in the fund is distributed annually to support education.

There are periodically efforts to direct more of the fund into the state’s operating budget, an action that would require a constitutional amendment. A major issue is the impact of such changes on the long run earnings of the fund. That is, earnings from the fund in the future will be lower to the extent that the body of the fund is reduced to support current expenses.

It is the obligation of the legislature to collect revenues to fund services that are the state’s responsibilities. Hopefully, legislators will focus on equity and social justice as they make these critical decisions.

Kathy Brook and Eileen VanWie are copresidents of the League of Women Voters of Southern New Mexico.