The Roundhouse in Santa Fe (Photo by Heath Haussamen)
There has been a lot of discussion in New Mexico of ways to jump-start our struggling economy. This is good news. For too long, we have relied on the federal government to add or save jobs at the air bases or labs as the basis of the economy in our beautiful state.
But out-of-control deficit spending has finally caught up to the political class in Washington, D.C., and money flowing back to the states is drying up fast. While some worry about this, it is good to see Washington finally starting to wake up to the reality of a fixed budget. As an advocate for free market entrepreneurship, it is even better to see state policymakers looking for new ways to bring business to New Mexico.
We should want all businesses to aspire to succeed in a free market where the private capital and risk-taking of entrepreneurs create jobs out of thin air through innovation and without government assistance. An incentives-based approach is rooted in the mechanism of government and politics and it has proven repeatedly to be wrong-headed.
Take the creation of New Mexico’s film industry as an example. Such incentives are a “zero-sum” game with money taken from one group of taxpayers and transferred to another, preferred group. Often, these incentives lock a powerful special-interest group into place – courtesy of taxpayers.
Eliminate the personal income tax
There are some expensive economic development studies in the works that are designed to answer the question of how best to spur New Mexico’s economy. The Rio Grande Foundation, using economic data from across the nation, has produced its own ideas. Unlike narrowly-targeted incentives, these policies have proven to serve the wider interests of our population, not just special interests. Nonetheless, in this time of economic uncertainty and broken budgets, it will take real leadership to overcome political opposition that tends toward preserving the status quo.
The first is to eliminate New Mexico’s personal income tax. According to Arthur Laffer and Stephen Moore, “from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no (state) income tax, including Florida, Nevada, New Hampshire and Texas.”
In addition, Laffer and Moore also found that over these same years the no-income tax states created 89 percent more jobs and had 32 percent faster personal income growth than their high-tax counterparts.
New Mexico, unlike most states, has a robust gross receipts tax that is charged at high rates. Reforming and restoring this tax – along with fiscal restraint – would enable the income tax to be eliminated.
Whether he really intended to or not, Gov. Richardson got the ball rolling when he took New Mexico’s top income tax rate from 8.2 percent to 4.9 percent. New Mexico’s economy has seen a bump (relative to other states) in personal income, but more needs to be done.
Right-to-work legislation
The second major reform is the adoption of “right-to-work” legislation. Simply put, these laws prohibit employers and unions from requiring membership in a union or payment of union dues a condition of employment. In other words, if you want to be in a union, you can, but you can’t be forced to be in a union either. Currently, New Mexico does not have such labor protections.
According to economist Dr. Richard Vedder, both population and income growth have been significantly faster in the 22 states with right-to-work laws than in those states that allow forced-unionism. Texas, Oklahoma, Arizona and Utah all have right-to-work laws in place.
Other reforms
The list of other reforms that could be made includes improving our failing educational system (as the governor attempted this year), reforming our regulatory system with an eye towards simplification, ease of compliance and lowered costs, and reducing the overall size and scope of New Mexico government by taking into account so many efficiencies afforded by a modern, technologically-driven workforce. But, to begin, top priority should be given to eliminating the income tax and adopting right-to-work laws.
Economic development is hard work. So is tackling the special interest groups who stand in the way of reforms. The fact remains that pushing the Legislature for these big, real reforms instead of limited “incentives” is the only proven way to grow and sustain an economy. The full report is available here.
Vic Bruno is treasurer and a board member of New Mexico’s Rio Grande Foundation, an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.