COMMENTARY: New Mexico’s gross receipts or sales tax system is a mess. It is undermined by 383 loopholes, exemptions and deductions for a grab bag of things ranging from fuel for space vehicles to professional boxing matches.
It would be a good idea to close these and dozens of other loopholes and to use the resulting revenue to reduce overall tax rates.
Courtesy photo
Fred Nathan
Yet the governor and some legislators want to go beyond closing these special-interest loopholes and reimpose the tax on food. Unlike other exemptions, the food tax exemption benefits hundreds of thousands of low- and middle-income New Mexico families. As a consequence, the food tax exemption enjoys wide public support. It is one of the few areas of our tax code that is not broken.
Simply put, reimposing the tax on food does not belong in a tax reform package.
However, the food tax has once again been put back on the table as the Legislature prepares to convene in a special session to resolve issues over the state’s budget. The food tax exemption is worth tens of millions of dollars, which makes it an appealing target for politicians any time there is a budget crunch. Moreover, unlike the exemptions, deductions and credits that benefit narrow special interests, the food tax exemption does not have professional lobbyists defending it.
One of the core purposes of tax reform is to make New Mexico’s tax system less idiosyncratic and more like the tax structures of other states. Taxing food would take New Mexico in a very different direction from the vast majority of states.
Two-thirds of other states (34) do not impose a sales tax on groceries. This includes our neighbors: Arizona, Colorado and Texas. Before New Mexico repealed its tax on food in 2004, many residents of Las Cruces would drive to El Paso for their weekly grocery shopping — and while they were there, they would shop at other stores in the mall, eat at a restaurant, see a movie, and then return with their wallets empty.
The “tax reform” proposal being discussed would also tax prescription medications like those that lower blood pressure and treat chronic illnesses like diabetes. Illinois is currently the only state in the nation that taxes the sale of prescription medicines, according to the Federation of Tax Administrators.
What if instead of taxing necessities like baby food, fruits, vegetables and prescription medicines, we taxed alcohol, tobacco and e-cigarettes somewhat more heavily?
All taxes have collateral negative consequences, but taxes on alcohol and tobacco actually yield social benefits. Numerous studies have found that higher taxes help discourage young people from smoking and drinking because they have less discretionary income and are more sensitive to price increases.
In addition, the taxes on alcohol and tobacco do not generate sufficient revenue to compensate the state for the heavy costs of these products, from health care costs to law enforcement expenses.
According to the U.S. Centers for Disease Control and Prevention, New Mexico experiences more alcohol-related deaths per capita than any other state in the nation, including deaths from things like DWI and cirrhosis of the liver. Yet, New Mexico’s excise tax rate on hard liquor is only the 22nd-highest in the country. Meanwhile, a loophole in the tax code has meant that e-cigarettes have escaped being taxed in the tobacco excise act, so they are taxed much more lightly than any other tobacco product.
Further, taxes on alcohol and tobacco are the only taxes that the public supports. According to a January 2017 poll by Research & Polling, 66 percent of New Mexicans support increasing taxes on alcohol and tobacco, with only 19 percent opposed and 14 percent neutral. Naturally, unlike food, alcohol and tobacco are protected by teams of high-powered lobbyists. It is time for the governor and the Legislature to come together and put the public interest ahead of what the special-interest lobbyists are telling them to do.
As the Legislature convenes for a special session, we hope that legislators and the governor will listen to their constituents who prefer increasing taxes on harmful luxuries like alcohol and tobacco rather than imposing new taxes on necessities like food and medicine.
To learn more and contact your legislators and the governor, please visit thinknewmexico.org.
Fred Nathan is executive director of Think New Mexico, an independent, results-oriented think tank serving New Mexicans.