A state income tax on New Mexicans’ Social Security benefits would be eliminated for most seniors under one of the first bills to be filed ahead of the upcoming 30-day legislative session.
While the proposal is designed to put more money in seniors’ pockets, it would cost tobacco users more.
The proposed legislation by Sen. Bill Tallman, D-Albuquerque, calls for increasing the tax on cigarettes and other tobacco products to make up the loss in state revenue.
Tallman listed multiple reasons for championing the bill, including the fact that New Mexico remains one of only 13 states to tax Social Security benefits, but he said it’s also just the right thing to do.
“Thirty percent of the retirees in New Mexico are living on Social Security only, and the average annual payment is only about roughly $14,000, which obviously does not secure you a high standard of living, so to tax that makes it even worse,” he said.
The push to repeal the tax comes after previous efforts in the Legislature have stalled.
“We’ve been very surprised at how difficult it’s been to gain traction with this because it makes so much sense,” said Fred Nathan, executive director of Think New Mexico, a Santa Fe-based think tank that developed the proposal after recommending the reform in a 2019 policy report.
According to the report, the income tax was part of a “long and complex bill” lawmakers passed in 1990.
“A single line on the second to last page of Senate Bill 310 quietly repealed New Mexico’s tax exemption for Social Security benefits,” the report states. “The bill passed and was signed into law with no public reporting on the new tax on Social Security benefits.”
Tallman called it double taxation.
“You’ve already paid tax on it [while working], and now you’re paying again [in retirement],” he said.
Tallman said the reason the tax hasn’t been repealed in the past is because “leadership” doesn’t want to lose the revenue.
“Well,” he said, “we’ve given them a pathway to have their cake and eat it, too, by increasing the tax on tobacco, which will offset the losses in Social Security payments.”
Tallman noted the tax will still affect about 10 percent of seniors.
The bill would exempt the tax on seniors whose incomes don’t exceed $72,000, or $124,000 for a married couple.
“Based on recent IRS data, this exemption would cover all but about the top 10 percent of wealthiest seniors in New Mexico,” a news release states.