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LFC starts tax conversation

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By Harold Morgan

The Legislative Finance Committee went to Rio Rancho’s version of the end of the world to hear about taxes at its July meeting.
The presentations by leading tax experts in the state were process, rather than offering exciting specifics worth turning into big headlines. Even so, committee members stayed awake. Sen. John Sapien, Corrales Democrat, was occupied with two computers, a Mac laptop and a tablet. Others had the magnificent view of the Sandia Mountains from the meeting room on the second floor of the new one-building University of New Mexico West.
UNM West is part of Rio Rancho’s civic center, which is around five miles from anywhere. Only the new Central New Mexico Community College campus is further from civilization than UNM. A sign near UNM claimed CNM was over the next hill.
Committee members heard that taxes are complicated and that corporate income taxes are especially complex. Tom Clifford, secretary of the Department of Finance and Administration, reviewed the administration’s tax policy thinking, as the LFC begins considering the 2013 legislative session. Demesia Padilla, secretary of the Taxation and Revenue Department, summarized a complex soon-to-be released100-page report on what the state really does with tax money.
Not that tax complexity is news, said attorney Helen Hecht, who is tax counsel at the Federation of Tax Administrators, other factors enter as well. The complexity means “there is also a significant administrative cost to be paid.” Tax complexity creates risk, hurts taxpayers due to fear, hurts governments that don’t understand tax systems and collect too little, and especially hurts small businesses, which are more likely to do their own taxes.
A big problem, Hecht said, is that “giving tax breaks to certain taxpayers” creates winners and losers for no good reason. Winners (film companies) may pay less. Losers (the voiceless everyone else) pay more. While the film example here is mine, Tom Clifford, DFA secretary, cited the two famous film subsidy studies as “an example of how difficult it is to evaluate such programs.”
Richard Anklam, president of the Tax Research Institute, didn’t go so far as to say the state’s corporate income tax was such a mess that it wasn’t worth the trouble. However, Anklam did say, “State corporate income tax is as complicated as every other state tax combined. Compared to the revenue generated, this complexity is relatively significant, rendering this form of taxation exceptionally inefficient.”
So there! Anklam usually posts presentations at nmtri.org.
Clifford began what will be a six-month conversation with the Legislature about tax changes. He started with noting that New Mexico has low property taxes, average income taxes and high sales taxes with overall revenue growth that, while unstable, has kept up with population growth and inflation. The state economy “significantly under performed the national economy” from 1997 to 2010, meaning that we are falling farther behind the nation.
Administration budget priorities include sustainable budgets, education and tax policies competitive with other states. Tax changes must fit the budget. The administration will work with the LFC on the budget and on revenue forecasts, Clifford said.
Practical “tax reform options to promote economic growth” include corporate income tax (a lower rate), small business tax relief (half the state’s businesses have sales under $50,000), reducing gross receipts tax pyramiding (including research and development), veteran’s pension relief, tax incentive reform and administrative matters.
A context for the tax discussions, unmentioned at the LFC hearing, came the day before with the release of yet another study showing New Mexico with a mediocre business climate.
 The CNBC.com report, “America’s Top States for Business 2012,” ranked New Mexico 36th. The report grouped 43 measures into ten categories. New Mexico was 46th in education and 47th in business friendliness.
Harold Morgan
New Mexico Progress