COMMENTARY: Last column, I defended the actions of Ben Baur, the state’s chief public defender, who refused to put his attorneys and staff in the untenable position of providing representation when he knows they simply can’t do so in a constitutionally adequate manner with current staffing (read: funding) levels.
We’ve blown through our state reserves. We’ve rounded up all the spare change in hundreds of agency accounts. We’ve slashed government full-time employees by about 20 percent since Gov. Martinez took office, and those numbers were already down almost 20 percent from pre-recession levels.
We’re at a point where no one is surprised anymore when kids fall through CYFD’s safety net, or that medical care is slashed by almost half a billion dollars in one year, or when our class sizes continue to balloon, or when tuition is going up at a much higher rate than wages.
There will always be disagreements about the right level of taxation and the type of taxation we should adopt to pay for core services. But recently, there has been nearly unanimous support for a broad range of revenue sources that Governor Martinez has, so far, rejected.
Even though many of us would like to see more progressivity restored to New Mexico’s personal and corporate income tax structure, that’s not going to happen under Governor Martinez. It’s not.
So, here are nine areas that don’t even require as heavy a lift as raising rates on the very rich or corporate giants. These ideas close loopholes, end exemptions, and apply common sense to our tax policy.*
Revenue business can live with — or supports
First, business in New Mexico is hurt badly by having a gross receipts tax for purchases in person while internet sales go untaxed. So I can go into a local store, get help from a salesperson, physically examine the product, even try it out, and then go online and buy it without a penny of tax. No one likes taxes, but what about that local business that pays the salesperson, pays rent to show products, pays for inventory for me to see and try the products, and provides a place to repair or return the product if it doesn’t work out?
Closing the GRT internet loophole wouldn’t raise tax rates at all, wouldn’t tax any new goods or services, would improve the lives of real New Mexicans who own and work at businesses, would create more jobs, and would help balance our budget. Why hasn’t this happened yet?
A second business-approved revenue generator is to join 48 other states with some form of health-care provider assessment fee. Hospitals, nursing homes, and many doctors are begging for a small fee to be assessed to them for one simple reason: our budget deficit has left us about $85 million short on the state’s share of Medicaid payments, which, due to federal Medicaid matches, last year alone resulted in $417 million in health-care cuts.
Most health care providers would gladly pay some small fee — likely less than 1 percent — to fund our budget enough that we wouldn’t have to cut Medicaid and lose massive federal matching funds. Beyond the obvious good to society that comes from New Mexicans receiving health care, the additional out-of-state revenue means thousands of jobs, which in turn helps create an upward economic spiral.
Plus, if U.S. House Speaker Paul Ryan’s dreams of cutting Medicaid come true, the feds will use these current fiscal years to determine New Mexico’s “baseline” to calculate Ryan’s block grants, meaning fully funding Medicaid now is an investment that will pay dividends for years for our economy.
The first rule of holes is to stop digging. And that’s a perfect summary of why a third option to shore up our budget should be enacted: Don’t cut out-of-state corporate taxes any further. Slashing corporate taxes has still left New Mexico with one of the two worst unemployment rates in America.
Freezing corporate taxes where they are isn’t ideal. We should repeal the cuts from the last two years. But at a minimum, freezing cuts and not giving away even more is a critical piece of re-establishing a balanced budget.
Closing corporate loopholes
Fourth, there’s a huge corporate loophole out there that wouldn’t require higher tax rates or a new law: combined reporting. Combined reporting simply means taxing companies based on their actual activity in the state by not allowing them to hide their money out of state to avoid paying taxes. New Mexico joined much of the rest of the country by enacting combined reporting in 2013, but created massive exemptions for many industries, like banking.
Not only would closing that loophole help balance the budget, but it would put local New Mexico banks (which don’t have the option of off-shoring their money) on a level playing field with Wells Fargo, Bank of America, and the other multinational behemoths who skate by with minimal New Mexico state taxes while local lenders pay their fair share.
It would almost certainly be another job creation mechanism for New Mexicans, as local banks hire local workers. Remember, it’s only the big multinational conglomerates and national companies that benefit from this loophole; maybe it’s time to consider treating them the same way we treat New Mexico companies.
A fifth avenue is to close gross receipts tax (GRT) loopholes on products like vehicles. Right now New Mexico totally exempts auto sales from GRT (around 7.5 percent in most parts of New Mexico), instead placing a flat 3 percent excise tax on sales. Last decade, the late Don Chalmers, a wonderful person, wildly successful businessman, and strong Republican, proposed to a blue ribbon task force that the vehicle excise tax be raised to 4 percent — a voluntary concession by auto dealers acknowledging their business wouldn’t suffer by being closer to the GRT we charge for most other goods and services.
Whether we end the vehicle GRT loophole and other industry-specific excise tax rates entirely or simply raise the excise tax to be closer to GRT, this is something that at least some business leaders have already acknowledged would be a sensible way to help balance the budget.
Closing investor/gambler loopholes
A sixth option, also a loophole, is to eliminate capital gains exemptions from personal income tax. Right now, the vast majority of people reading this pay a 4.9 percent state income tax on every dollar they make above $16,000. But if my job is to speculate on Wall Street, I pay half of that.
Whether you call it “investing” or “gambling,” there’s no reason that capital gains, which is another term for “income” that happens to be derived from Wall Street, should get a special loophole.
Timing taxes wisely
A seventh option is to reform gas taxes so that they’re countercyclical. One significant contributor to our budget deficits is the fall in oil and gas prices, which under the current system is a double whammy. We lose both severance revenue and revenue from gas taxes because the tax is a fixed amount no matter how high or low the price of a gallon.
Instead of applying a flat amount of tax to every gallon of gas, we could lower (or eliminate) state gasoline taxes when oil and gas prices are high. That would help consumers and the economy when we need it most by putting more money in consumers’ pockets in tough times. And the state’s budget wouldn’t suffer too much because if oil and gas prices are that high, state revenue from severance taxes would be booming, too.
The tradeoff? When oil and gas are ridiculously inexpensive, state revenues plummet, and consumers are getting a terrific windfall, we use a sliding scale to reinstate the gas tax. It provides more predictability and stability to consumers at the pump and reduces budget volatility. When even the Albuquerque Journal endorses gas tax reform, you know it’s something that most Republicans should be supportive of, too.
Adjusting for inflation
An eighth revenue option is to bring “sin taxes” up to date. We don’t index sin taxes to inflation, meaning that revenue from the 1970s has been effectively cut by inflation by about two thirds.
While the regressive nature of sin taxes is a negative, there are many positives: First, taxes on products like tobacco are proven to reduce consumption among teenagers, meaning that fewer of our citizens get hooked. Long-term that may reduce revenue from tobacco taxes, but long-term it will also reduce our health expenditures, whether in the public or private sector.
Second, it’s a voluntary tax. If I don’t like an extra dime a drink, I can have a glass of water or tea or milk or alcohol-free beer instead. But here’s the reality everybody who has ever been in a bar knows: I’m probably not skipping a second beer because it’s $2.85 instead of $2.75, so it’s not like bars and restaurants will actually see any effect.
Third, products like alcohol and tobacco cause significant expenditures by the rest of us, whether measured in crime, accidents or health costs. Asking consumers of those products to bear a higher percentage of those costs than the rest of society is eminently fair to everyone involved.
To merely bring sin taxes up to date by adjusting them for inflation ought to be a fairly uncontroversial solution.
Turning a negative into a positive
A ninth option would be legalizing, regulating, and taxing marijuana. At its core, legalization simply stops consumer money from funding violent gangs and drug lords, and diverts that revenue to things like education, prevention and treatment. Reducing police, judicial and corrections costs while taking in new revenue and disempowering criminals is about as win-win as policy gets.
There are many more options to close our revenue gap, including cracking down on big corporations that are emboldened by clever lawyers and accountants who have figured out ways to game the system. To their credit, legislators in both parties have already begun moving in this direction by narrowing definitions for high-wage tax credits and health-care provider exemptions, and to her credit, this is one area so far that Gov. Martinez has shown some openness to pursuing.
But these clarifications of existing programs are a few grains of sand in a massive hole that can’t be filled by digging deeper.
A golden opportunity
Ultimately much of the budget solution hinges on Gov. Martinez balancing her affinity for opposing true tax increases with a willingness to raise revenue simply by closing loopholes and enacting smart policies to fulfill her obligations to all New Mexicans.
Governor Martinez has been given a golden opportunity now that businesses and even the Albuquerque Journal are supportive of closing some loopholes and enacting smarter tax policies. She’s been given a golden opportunity to reach across the aisle and restore revenues in a bipartisan way. She’s been given a golden opportunity to improve state services from CYFD to public defenders and look like a hero for doing so.
Or she can watch the state continue to deteriorate and oversee a systemic implosion of public services and budgets on her watch, just as governors who were inflexible about revenue in Kansas and Louisiana have.
Voters may not like tax increases, but they love closing loopholes, a level playing field, and sensible, bipartisan revenue solutions to fund important services. Good policy can be good politics, and the governor and legislators in both parties should seize this opportunity to do both.
*As always, New Mexico Voices for Children has been an indispensable asset in helping me (and more importantly, policymakers) understand our budget. Nothing in here is represented as a VFC position (although they likely agree with much of it), but I wanted to acknowledge their help in identifying and clarifying options available to help New Mexico balance its budget.
Carter Bundy is the political and legislative director for AFSCME in New Mexico. The opinions in his column are personal and do not necessarily reflect any official AFSCME position. Contact him at [email protected].