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It’s tax time again and that means pundits will trot out the stale claim that some Americans don’t pay any taxes and assert that the beleaguered rich are stuck paying more than their fair share. But when you look at the whole tax system you see a very different picture.
While some Americans don’t pay federal income tax (mainly because they earn poverty-level incomes), virtually everyone pays some form of tax. And most taxes (especially at the state and local level) hit the working poor and elderly hardest.
The omnibus tax bill New Mexico’s Governor just signed will make that injustice even worse.
The federal income tax is progressive—meaning those who earn the most pay the highest rate.
It’s designed this way because most state and local taxes are regressive—meaning those who earn the least pay the largest share of their earnings in these taxes.
State and local sales and excise taxes are examples of regressive taxes.
Those who earn very low incomes have to spend a greater percentage of it on necessities, many of which are taxed (like clothes, diapers, toiletries, etc.).
High income earners don’t spend all of their money, so sales taxes take up a much smaller share of their income.
In New Mexico (where the gross-receipts tax, or GRT, amounts to a sales tax), sales and excise taxes eat up
10 percent of the annual
earnings of those at the low end of the income scale. Those same taxes nibble away less than 2 percent of the income
of those at the top of the scale.
Even though the state income tax is progressive, the overall state and local tax system remains regressive.
Those with the highest incomes pay less than 5 percent of their income in state and local taxes, while the poorest New Mexicans pay twice as much—10 percent—of their income in state and local taxes.
The distinction between sales taxes and income taxes is important—and it’s one of the big reasons that the omnibus tax bill just signed by Gov. Susana Martinez is patently unfair.
One of the worst provisions of the omnibus tax bill is that it lowers the corporate income tax rate with no performance accountability for creating jobs.
When one tax is cut, either government spending for schools, public safety and health care must be cut, or another tax must be raised.
Because of a provision in the bill, the choice of cutting services or raising GRT rates will fall to city and county governments.
Even though local governments have a couple of years to decide, many are already considering raising GRT rates, and many more are likely to do so when faced with the prospect of laying off firefighters and police officers, or cutting services like trash collection.
Since the GRT is a regressive tax, these rate increases will fall hardest on New Mexico’s working poor and elderly, who are already struggling.
Corporate income taxes, on the other hand, are progressive. They are paid by the corporation’s shareholders. Large concentrations of shares are held by the corporation’s own CEOs and upper managers and their boards of directors—in other words, people at the top of the income scale.
So, on tax day—when everyone is focused on income taxes and corporate shareholders are enjoying yet another tax cut—don’t forget the big picture: that New Mexicans at the bottom will be paying for the big tax breaks for those at the top.
And they’ll be doing so without any guarantee that the tax cuts at the top will create even one new job.
Gerry Bradley is the senior researcher and policy analyst, New Mexico Voices for Children.
New Mexico Voices for Children is a nonpartisan, nonprofit organization advocating for policies to improve the health and well being of New Mexico’s children, families and communities.