Income tax hikes removed from bill to expand tax credits for low-income New Mexicans

(The Center Square) – The New Mexico legislature has overhauled a controversial bill involving expansion of two low-income tax rebates by removing the accompanying tax hikes.

Starting with those earning $75,000, House Bill 291 was going to raise income taxes on middle class New Mexicans up to the wealthiest. These were to pay for the expansion of the Working Families Tax Credit (WFTC) and the Low Income Comprehensive Tax Rebate (LICTR).

Late in the process last week, the tax increases were pulled out in committee because the state doesn’t need the extra revenue to pay for the two expansions, according to Paul Gessing, president of the Rio Grande Foundation, a free-market think tank and research institute.

“The state of New Mexico is swimming in money according to analyses done right as the session was getting started,” Gessing told The Center Square. “The announcement was that we had $300 million in what’s called new money. Basically, this was due to the rapid recovery above analysts’ expectations in oil and gas so that’s the number one thing.”

In addition, state and local governments in New Mexico received a total of $9 billion from President Joe Biden’s stimulus plan.

The state also is expecting to generate more revenue from the legalization of marijuana, for which Gov. Michelle Lujan Grisham has called an upcoming special session.

The Rio Grande Foundation did not oppose the expansion of WFTC and LICTR, according to Gessing.

“New Mexico’s tax code is somewhat regressive because of our heavy reliance on the gross receipts tax, which is our version of a sales tax, but actually much more robust,” he said.

The income cap to qualify for LICTR was raised to $34,000, according to Gessing.

Bill sponsor Christine Chandler, D-Los Alamos, touted a common economic argument for cash-based handouts.

“By investing in our financially struggling families and allowing them to keep more of their hard-earned dollars, we are enabling them to spend more in their local economies and neighborhood small businesses,” Chandler said, as reported by the Los Alamos Daily Post.

Gessing said that is economic reasoning that has failed New Mexico in the past, but these proposed rebates have some free-market principles that make them preferable to other forms of government aid.

As income tax rebates, they incentivize work, Gessing said.

“Getting out of that particular issue with that bill without a tax increase – we’re OK with these low-income credits being expanded,” he said.

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