What About Revenue?

With a probable $500 million state budget shortfall, all the talk leading up to the upcoming legislative session has been cut, cut, cut. Cut capital outlay funds, cut public programs, cut hiring across the board for state agencies.

Lean times call for a reevaluation of spending priorities, to be sure. But unlike the federal government, states have no ability to deficit spend. This means that during a huge economic recession (like the one we’re mired in now), states actually have to make the most difficult decisions.

This brings us back to the almost universal focus on spending cuts. In such difficult times – times that call for continued investment in unemployment insurance and public health care programs like Medicaid, why are we not hearing more about developing creative methods for maximizing state revenue?

I’m not talking about raising taxes on the average New Mexican (although, I suspect that allegation will be leveled against me when I explain the so-called “combined reporting” idea). Instead, I’m talking about arming New Mexicans with the proper information to make informed decisions, while also making sure that all businesses operating in New Mexico pay their fair share of taxes.

For the best analysis on tax policy, I recommend visiting New Mexico Voices for Children.

Unlike many states, New Mexico reaps much of its general fund revenue from gross receipts taxes (most states rely more on property taxes).

Unfortunately, one glaring drawback to gross receipts taxes is that they can easily be forgiven. What I mean is, if a company or industry wants to forego paying gross receipts tax, they have an incentive to see if they can get the legislature to give them an exemption.

My understanding is that there are hundreds, perhaps thousands of gross receipt tax exemptions in our current tax code. It’s not that all exemptions are bad. Some are probably very useful for economic development. But, if the people of New Mexico are going to forego revenue for their general fund, they ought to at least get the chance to evaluate that lost revenue.

That’s why a tax expenditure budget is needed in New Mexico.
Several states, and the federal government, disclose how much tax revenue has been left on the table as a result of tax breaks or tax cuts. It stands to reason that New Mexico should follow suit with the same policy. Such a tool, fully disclosed to the public, would go a long way toward promoting open debate on evidence-based tax policy.

One additional way to generate revenue for our state is to equalize corporate tax rates for both home-grown New Mexico companies and companies headquartered outside the state. Called combined reporting, this is an easy way to make sure no out-of-state corporation is gaining an undue advantage over New Mexico businesses. As it stands, out-of-state companies actually pay a lower corporate tax rate that those headquartered here.

In these difficult economic times, we cannot afford to hear a one-sided debate about cutting spending. New Mexicans deserve to hear a reasonable discussion about maximizing state revenue.

Especially in the case of the tax expenditure budget, it will surely help us all in the long run.

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