State House Speaker Brian Egolf is considering proposing legislation in the next session that would reduce the gross receipts tax rate in New Mexico while eliminating some deductions and exemptions related to the tax.
A potential bill would propose cutting the tax by a quarter of or half of a percentage point, Egolf said Thursday. A half-point reduction would lower the rate from 8.4 percent to 7.9 percent in the city of Santa Fe.
Egolf said such a proposal would not lower the total amount of revenue taken in by the state because getting rid of certain deductions and exemptions would make up for the money lost to the tax cut.
“The idea is to make it revenue neutral,” said Egolf, D-Santa Fe.
Egolf said he and his staff are just beginning to study which exemptions and reductions a bill might propose to eliminate, but he aims to focus on taxes on business-to-business purchases rather than taxes on retail goods so consumers would be minimally affected.
He added that the intent of such a bill would be to help lower-income New Mexicans because a substantial part of their income goes to gross receipt taxes.
“Lowering the gross receipts tax is the best way to give people a tax cut in New Mexico,” Egolf said. “It affects lower-income folks the most.”
On the Senate side, Majority Leader Peter Wirth said he would support discussing tax reform in the next legislative session. He would support lowering the gross receipts tax rate, he added, but only if oil and gas revenue were not used to pay for the tax cut.
“The reason it’s justified is we’ve basically spent the last 40 to 50 years narrowing the tax base and raising the rates,” said Wirth, also a Santa Fe Democrat. “The danger is thinking the good times are here so now we need to start cutting the tax base.”
A half-point cut could cost the state an estimated $350 million to $400 million, Egolf said.
Yet all the exemptions, deductions and credits related to the tax currently add up to around $1 billion, according to Wirth.
Egolf said a potential proposal would only affect the portion of the gross receipts tax that goes to state revenue and would not affect the portion distributed to local governments.
“We’re going to be talking with the Santa Fe delegation about a variety of issues related to taxes and revenues,” Santa Fe Mayor Alan Webber said when asked about a potential gross receipts tax proposal. “This is something that we would take up at that time as we look at all the options.”
The idea of reforming the gross receipts tax was “very lightly brushed upon” in a Wednesday meeting attended by Gov. Michelle Lujan Grisham and leadership from the House and Senate, the Governor’s Office said.
“Tax reform is a worthy subject of discussion and debate,” spokeswoman Nora Meyers Sackett said. “At this stage, it’s too early to say whether that’s something legislators are going to push for, and the governor would need to see a more fleshed-out proposal before weighing in one way or the other.”
Rep. Antonio Maestas , D-Albuquerque, said legislators should eliminate the deductions and exemptions that do not have an economic benefit.
“Some of the deductions have an economic incentive component. Others are just giveaways,” Maestas said. “To me, all the giveaways should be done away with.”
Proposals to lower the gross receipts tax have been debated before. House Bill 6, passed in the last session, originally aimed to lower the tax rate, but that measure was taken out of the bill.
Rep. Jim Trujillo, who co-sponsored the bill, said he would support an effort to lower the tax rate if it didn’t affect overall state revenue, but he wasn’t sure whether it could be passed in a 30-day legislative session.
“If there’s a lot of support for it and they can show they’re not going to affect the general fund, I would certainly support that,” said Trujillo, who is chairman of the House Taxation and Revenue Committee.
The other side of the aisle might favor a proposal as well.
Sen. Mark Moores, a Republican from Albuquerque, said he was in “full support” of tax reform, saying the Legislature should “do some radical changes to the system.”
But Moores said he would want a greater cut to the gross receipts tax than a quarter-point or half-point.
“That’s not reform,” he said. “That’s just playing around the edges.”
Lawmakers said a likely obstacle to such a proposal would be resistance from lobbyists representing companies and industries that benefit from the exemptions.
“When you’re going to cancel tax exemptions and credits, there are winners and losers,” Trujillo said. “The minute you’re affecting them, they’re going to jump up and complain.”
Moores said that because of those potential objections, he doesn’t believe the governor and current legislative leadership are willing to take on such a proposal.
“It’s going to take a big fight with every lobbyist who has spent 50 years carving out their exemptions for their clients,” he said. “There’s no political will from the leadership to take this on.”