A proposal to simplify New Mexico's personal income-tax system easily cleared the House on Tuesday.

The tax overhaul was designed by the state Taxation and Revenue Department. It's intended to save people time in preparing their income-tax returns.

"This is a very taxpayer-friendly bill," said Rep. Edward Sandoval, D-Albuquerque, chairman of the committee that handles tax legislation.

For most taxpayers, the proposed overhaul will mean little, if any, change in tax liability. Some lower-income families may see a drop in taxes, but certain higher-income taxpayers could initially pay more, according to an analysis by the department.

The House unanimously approved the bill (HB262) with almost no debate and sent it to the Senate for consideration.

Under the proposal, a new credit will be established, and it will replace several deductions and exemptions as well as cover the value of New Mexico's graduated income-tax rates. The new credit varies according to a taxpayer's income and number of dependents.

Taxpayers who itemize deductions on their federal tax returns would continue to receive a state deduction for the amount of their federal deductions that's greater than the standard federal deduction.

The state has graduated tax rates from 1.7 percent to 4.9 percent. Under the legislation, those would be replaced by a single rate of 4.9 percent. However, supporters say the proposed change uses the new credit to maintain progressivity in the tax system.

Sandoval said the proposed tax overhaul will be more fair for taxpayers because the credit will be indexed for inflation. Currently, New Mexicans end up paying more taxes because inflation pushes income into a higher tax bracket or the value of an exemption is reduced by inflation.

Mostly because of the indexing provision, the state expects to collect less revenue in future years — $3.5 million less in the 2012 budget year and $11 million less in 2013.




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