Brian Egolf
Prepare to be shocked: Did you know that in New Mexico a family of four with taxable income of just $16,001 pays the same personal income tax rate as a family making $100,000, $250,000 or even $1 million?
Under our state’s tax structure, the highest tax rate kicks in at $16,001. This means that a family of four living at or near the federal poverty level pays income tax at the highest New Mexico rate. This must change, for reasons of both fairness and fiscal soundness.
In New Mexico, our tax system is extremely regressive, which means that it requires low-income earners to pay a higher percentage of their disposable income than high-income earners. The effect of a regressive system is that low-income earners feel the pinch of a tax bill far more than high-income earners, and low-income earners have far less money available for savings as a percentage of their income.
Our federal taxes are just the opposite; they are progressive, and ours should be too. With a progressive structure, you pay more only when you earn at a higher level. This is far fairer.
Because of our current, dire budgetary predicament, we are facing a tax-fairness train wreck: Taxpayers who saw the least benefit from our 2003 tax cuts are now facing the reality that they will feel the greatest impact from our spending cuts. Even though the great majority of the 2003 tax cuts went to high-income earners, the largest impact of budget cuts will be felt by low-income earners.
For example, under the 2003 tax cuts, those making $295,000 or more pay $13,000 less every year in income taxes. The average New Mexican — earning between $30,000 and $45,000 — sees a savings of just $38 a year.
The 40 percent of New Mexicans earning under $29,000 see no change at all in their tax bills. Yet, it is the people earning the lowest incomes that will feel the impact of spending cuts the most because they are the ones most likely to need the essential services that are being reduced or eliminated.
The 2003 tax cuts
The 2003 tax cuts removed $450 million a year from our state’s revenues, which coincidentally, is about the amount of our current budget deficit. This budget gap has already led to funding cuts in education, health care, and public safety — all of which have a negative impact on the majority of New Mexicans. Even if you’re not directly impacted — you didn’t lose your job, you don’t rely on state-provided health care and you don’t have children in public schools — you are indirectly impacted.
When the state cuts spending, people lose jobs. The businesses and nonprofit organizations that have contracts with the state, for everything from supplying copy paper to giving kids immunizations, must cut back on their spending and hiring as well. Those who have lost their jobs most certainly cut back on their spending. All of this disruption in commerce digs us into a deeper hole, dragging the recession on longer.
Cuts to health care are felt the most — and not just by those who rely on Medicaid to keep their kids well and their elders in a nursing home. The higher our percentage of uninsured people, the higher the costs for those who do have health insurance. As health insurance costs continue to rise, more people lose their coverage, which raises the costs for everyone else.
No matter how the state collects income and gross receipts taxes, two issues are clear: Enough revenue needs to be raised to pay for state services and programs, and the tax burdens and benefits need to be fairly shared. Our state must seize the opportunity presented by the current crisis to rebalance the tax burden by aligning our tax brackets along the lines of those at the federal level.
At the same time, we must roll back a portion of the 2003 tax cuts to provide the revenue we need to continue to provide the essential services on which so many New Mexicans rely every day. Doing so now — in the special session only a few weeks away — will bring new fairness to our tax system while also bringing long-term fiscal responsibility to our budget.
When the state was flush with funds, the highest-earning New Mexicans got the biggest benefit. Now times are tough, and those who got no benefit will suffer the consequences the most. That is unfair by any standard, and I will work to tip the scales back in favor of those who are long overdue for a fair shake from their state government.
Egolf is a Democratic state representative from Santa Fe.