Commentary: Bill Richardson wasn’t worried about either his Republican opponent, John Sanchez, or Green Party upstart David Bacon when he took the stage in Las Cruces for a televised debate prior to the 2002 gubernatorial election. Confident that victory was secured, Richardson directed his message to members of his own party in the Legislature.
He made it known that he would be proposing a big tax cut for the wealthy as one of his first acts. A future run for president was in the making, and Richardson needed to burnish his pro-business credentials.
The bill passed in 2003 reduced the top income tax rate from 8.2 to 5 percent and cut capital gains taxes by 50 percent.
That was the original sin.
Two years later, Richardson joined with the public policy group Think New Mexico to push through a repeal of the gross receipts tax on food.
I was a fledgling state government reporter still trying to grasp New Mexico’s unique tax structure, starting with the fact that we have a gross receipts tax and not a sales tax. Repeal of the food tax seemed like a simple equation to me at the time. All of us make choices about what we can afford and what we’ll go without. But none of us can go without food. That would seem to make any tax on food the most regressive tax of all.
Simple. Except that it wasn’t.
The bill repealed the GRT on food and some medical services while increasing it slightly on most other items. Based on buying habits in 2005, state economists predicted that it would all even out, with the increase covering the repeal. That’s what legislators thought they were voting for.
But buying habits have changed dramatically in the last 14 years. People still buy food at the local grocery store, but now buy other items online, where GRT is not collected.
In an effort to protect small communities, where the grocery store is one of the primary sources of tax revenue, the bill included a “hold harmless” provision, in which the state would compensate cities and counties for lost revenue. The expense to the state for both the lost taxes on food and the hold harmless payments turned out to be far more than had been estimated.
It didn’t take long before Senate Finance Committee Chairman John Arthur Smith and others started having buyer’s remorse.
In 2013, the Legislature voted to phase out the hold harmless payments, while giving cities and counties the authority to raise the local GRT rate by up to ⅜ percent. Shifting the burden downward allowed then-Gov. Susana Martinez to maintain her pledge of not raising state taxes. But both the city of Las Cruces and Dona Ana County passed the full GRT increase, meaning shoppers in Las Cruces now pay both.
Smith and Republicans in the Senate have made several attempts at restoring taxes on food, including two bills this year. They argue that the loss of revenue from food taxes has been devastating to poor, rural communities. And, because food purchased under the federal Supplemental Nutrition Assistance Program is not taxed, repealing the food tax for everybody may not be as beneficial to low-income residents as was intended.
To be clear, neither bill is going anywhere. And that’s probably a good thing. I still think my initial instincts about taxing food were correct. But the repeal created a bureaucratic monster that lawmakers are still trying to slay 14 years later.
As the current Legislature considers tax reform that will be needed to cover the recurring spending increases being considered in this year’s budget, there are some lessons to be learned from 2005.
Everything is interconnected and nothing is ever as simple as it seems.
Walter Rubel can be reached at waltrubel@gmail.com.