Inside the Capitol

Sunday, January 24, 2010

1-18 What Taxes Do We Incxrease?

MON, 1-18-10

SANTA FE - Even before the 2010 Legislature convenes, its shape has begun to form. Both Gov. Bill Richardson and legislative leaders have announced they think about $400 million more in cuts and maybe $200 million in tax hikes seem to be in the ballpark.
After several years of fighting, a little bit of agreement comes as a relief. After Richardson's initial honeymoon of big spending on ambitious projects, lawmakers began pushing back, making the subsequent years less than pleasant.
The next 30 days may not be so pleasant either. Little agreement exists over where those cuts should be. And there may be even less agreement about where the tax increases should be. People don't like to see their taxes increased when the economy is bad.
Will tax increases make the economy even worse? Republicans say yes. Democrats say President Herbert Hoover cut taxes during the early years of the Great Depression and the economy tanked even more. President Franklin Delano Roosevelt, they say, raised taxes and the economy improved.
That seems counterintuitive but we may have to do it anyway and find out. We're running out of major areas to cut and not harm public services.
So what taxes do we increase? A majority of Democrats don't want to hurt the little people. The poor are most hurt by sales tax increases. They are called gross receipts taxes because the sellers actually pay the tax but always pass it on to you.
A few years ago, the gross receipts tax on food items was eliminated. A proposal to eliminate that tax is going nowhere this year because many Democrats don't like it. Gross receipts taxes are some of the least objectionable taxes to Republicans but with a chance to kill any tax hike, Republicans have unanimously lined up to make this a non-starter.
Another closely related proposal is a sin tax on alcohol, tobacco and junk food. Who can oppose that? Every one of those products have strong lobbies that contend their products already are taxed too much. And besides, we're hearing that poor people consume more than their share of these items so this tax also is unfair. We likely still will hear more about this one however.
On the other end of the economic spectrum are the wealthy whom Gov. Richardson has tried hard to court for seven years with lower income tax rates, lowered capital gains rates and deductions, rebates and giveaways to selected industries. He calls it economic development. Understandably many Democrats and some Republicans call this corporate welfare.
Richardson claims these economic development measures have benefited the state immeasurably. Expect the 2010 Legislature to demand some convincing measures of these benefits. If Richardson can't provide any convincing evidence, we may see some legislation passed. Since Richardson has vowed to veto any such legislation, this appears to be one more possible tax that doesn't stand a chance.
So what's left? A popular whipping boy the past two years has been the corporate taxes not paid on New Mexico sales by national corporations. Somehow they manage to declare those sales in other states with lower tax rates.
That would seem like a good tax to go after except, like all other big corporate interests, it has a powerful lobby that has kept the tax from being imposed in the past. New Mexico awards in the neighborhood of $1 billion of tax breaks, exemptions and deductions to corporate entities at this time and it is unlikely to decrease.
1. A modest increase in the excise tax on new cars will be proposed. But in the West, driving is a sacred right that isn't to be tromped upon. Attempts to raise taxes on cars, registration or gasoline have been known to be disastrous to political careers.
That doesn't leave much left to tax. Maybe we'll have to look for more government services to cut that aren't as sacred.



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