Art of taxation: Exploring the pain threshold

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By Sherry Robinson

A Frenchman once said the art of tax collection is plucking the goose just below the threshold of greatest hissing.

Legislators and the governor will explore that threshold during this 30-day session as they attempt to dam the flow of red ink. Nobody’s pretending this will be easy, but it’s encouraging that the governor and lawmakers begin the process pretty close together with a slate of proposed spending cuts and tax increases.

The governor says everything’s on the table, but he’s adamant about preserving economic development tax credits and the much discussed rollback in the top personal income tax bracket. Good for him.

Critics have hollered a lot about income tax breaks for what they assume are fat cats.

Return with me now seven whole years ago to 2003, when Gov. Bill Richardson’s band wagon rolled into town, and everybody jumped on. We then had the highest rates on the upper brackets of the surrounding states. It was hurting our ability to attract new industry; a business owner wasn’t likely to subject himself to a big tax bite if he had other options. (Texas, remember, has no income tax, although it’s found many other ways to pluck the goose.)

Tax-wise, we also had an odd notion in this state about who exactly was rich. An accountant pointed out to me at the time that a lot of two-earner families, including teachers, were in the higher brackets. When that cut was enacted, the highest bracket dropped from 8.2 percent to 4.9 percent over 5 years (Republicans wanted to drop it to 4.2 percent over four years).

That same tax cut filtered down through multiple brackets to couples earning as little as $24,000. So the Legislature can’t just repeal that break without a lot of collateral damage.

Right now, 9 percent of the state’s households pay 60 percent of the state’s personal income tax. Raising the tax on high-income households would narrow that base. Not good policy, says the Legislative Finance Committee. But this is a tough year. Let’s say lawmakers raise the tax on the highest brackets. If they’re smart, they’ll keep it at or below the rates of surrounding states.

The other proposal that’s provoked warm speechifying is the food tax.

It was a great day in New Mexico when the Legislature lifted that tax. Now business people led by the Greater Albuquerque Chamber of Commerce want to bring it back. During hard times, they want to add to a mom’s cost of buying milk for her kids. The chamber hasn’t exactly covered itself with glory on this one, even though it would raise a lot of revenue. And in a year when all our state representatives are running for office, who will be crazy enough to vote for this?

The taxes on soft drinks, junk food, booze and cigarettes are all but guaranteed to rise. There’s hissing about this too, which is hard to understand. If you can use Coke to clean the battery terminals in your car, what do you think it’s doing to your teeth?

The more do-able proposals – tap the rich and “sin” taxes – won’t raise all that much money. Which is why the Legislative Finance Committee would cut state salaries by 2 percent, reduce benefits and end double dipping.

The folks who worry me are the ones who think all we have to do is raise taxes, and bingo! Problem’s solved! Let’s say everybody buys the House Speaker’s proposal for a small hike in the gross receipts tax. Increasing the burden on a tired burro means the burro slows down. How do you even predict revenues?

The governor suggests any new taxes will be temporary. The gross receipts tax began life as the Emergency School Tax of 1935, also temporary. The goose hissed until she lost her voice.

© New Mexico News Services 2010