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Tax Fairness and Reform Bill Passes New Mexico House

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  Santa Fe, N.M. - A major tax bill has passed the New Mexico House.  Here is a statement from the NM House Democrats:

 

Today, the New Mexico House of Representatives passed long-needed reforms that make the state’s tax code fairer and diversify New Mexico’s sources of revenue. The measure passed on a party-line vote of 42-27 and will head next to the Senate. 

 

Sponsored by Representatives Javier Martinez (D-Albuquerque), Christine Chandler (D-Los Alamos), and Matthew McQueen (D-Galisteo), HB 291 expands two proven poverty-reduction programs in the state: the Working Families Tax Credit (WFTC) and the Low Income Comprehensive Tax Rebate (LICTR). The legislation reforms what has been a relatively flat tax structure in New Mexico, creating three new tax brackets for the state’s highest income earners. It also ends tax breaks on second homes and removes the capital gains deduction for individuals selling stocks, bonds, and businesses, while still maintaining the benefit for the sale of New Mexico small businesses.   

 These changes will lift New Mexico families out of poverty, provide support for those hardest hit by the pandemic, and diversify the state’s sources of revenue, which are currently over-reliant on the oil and gas industry. 

 

“Our economic recovery is not being shared equally with low-income New Mexicans who bear the greatest financial burden,” said Rep. Martinez. “It’s critical we support our working families with a tax code that levels the playing field so they can keep more of their hard-earned dollars. This reform bill implements policies proven to help families work their way out of poverty, stimulates spending in local economies, and protects New Mexico businesses and investments.” 

 

“When working families receive a greater share of their hard-earned tax dollars, they spend that money quickly and locally,” said Rep. Chandler. “By expanding these programs, we are making a direct investment not only in families, but in our local economy. House Bill 291 reforms and brings some fairness to our tax code and I am proud to see it pass the House today.”

 

“Regular New Mexicans shouldn’t be priced out of the homes they’ve owned for decades because they can’t keep up with quickly rising property values, but second homes and vacation properties don't need that same protection,” said Rep. McQueen. “House Bill 291 continues our policy of protecting homeowners while ending tax breaks for the wealthy.”

 

The Working Families Tax Credit (WFTC) is the state-level companion to the federal Earned Income Tax Credit (EITC), a tax credit for low-income workers that 1 in 4 New Mexicans receive. HB 291 raises New Mexico’s WFTC from 17% of the EITC to 20%. In New Mexico, tax filers typically only receive the WFTC for one or two years as they advance in the workplace and earn a higher income. Roughly 97% of those who receive the credit have children, making the program one of the most effective methods to reduce child poverty.  

 

Similarly, LICTR provides crucial support to those who need it most, especially for low-income seniors who are able to claim additional tax exemptions through the policy. LICTR was designed to offset the regressive impact of the Gross Receipts Tax, however it has not been adjusted to the cost of living in over two decades. HB 291 resets LICTR to the current cost of living, raising the qualifying income level from $22,000 to $37,000 annually.  

 

New Mexico is an outlier in the nation, offering generous tax deductions and low tax rates to the highest income earners in our state. Today, a New Mexican family earning $25,000 pays the same top tax rate as a family earning $250,000, despite their very different economic positions. HB 291 makes our tax code more equitable, investing in policies that promote prosperity for all New Mexicans, and generating a stable source of revenue as we look to decrease our dependence on the oil and gas industries. 

 

An overview of HB 291’s main provisions is as follows: 

 

  • Increases the Working Families Tax Credit (WFTC) from 17% to 20% of the federal Earned Income Tax Credit. 
    • Ends current exclusions from the WFTC for tax filers who use ITINs and for workers 18-24 years old.  
       
  • Expands the Low Income Comprehensive Tax Rebate (LICTR). 
    • Sets LICTR to the current cost-of-living, allowing those who earn $37,000 or less a year to qualify. LICTR has been stagnant since 1998, even as the cost of living has increased.  
    • This would mean that many more New Mexicans would have access to relief at a time when so many are struggling to afford basic necessities.
  • Helps reintroduce a graduated income tax structure by creating three new tax brackets for the highest income earners in the state.  
    • Unlike much of the country, New Mexico has had a relatively flat tax rate for decades. In 2003, taxes for the wealthiest New Mexicans were cut from 8.2% to 4.9% and the top three tax brackets were eliminated. Currently, a family earning $25,000 pays the same top tax rate as a family earning $250,000. 
    • HB 291 reintroduces three tax brackets but keeps income taxes lower than they were pre-2003. The new brackets are: 
      • 5.5% for individuals making between $135K and $210K; joint filers making between $200K to $315K. 
      • 6.2% for individuals making between $280K and $415K; joint filers making between $415K and $622K. 
      • 6.5% for individuals making more than 415K; joint filers making more than $622K. 
  • Ends subsidies for second homes like vacation homes and investment properties. 
    • Removes a property tax deduction on homes that are not primary residences, a policy that has overwhelmingly benefited the wealthy. 
  • Scales back the capital gains deduction. 
    • Limits the deduction to no more than $1,000 for most tax filers. 
    • The sale of a small business by a New Mexico business owner would still receive the full benefit of the capital gains deduction. 
    • Capital gains are the profits an investor gets when selling stocks, bonds, or businesses. Currently, tax filers can deduct 40% of this profit. The benefit of this deduction overwhelmingly goes to those making over $100K a year.  
    • New Mexico is one of only nine states where capital gains are taxed less than wages are. 

 
Members of the public can track legislation on the New Mexico Legislature website, access committee meetings and House floor sessions via the Webcasts tab, or participate by Zoom to provide public comment on committee hearings. During the 2021 Legislative Session, the House of Representatives is focused on passing critical legislation while protecting the health and safety of the public, the staff, and the legislators.