Base State Budget on Economic Development


With only a few weeks left in the 50th legislature the halls are filled with all kinds of aphorisms about our state’s budget.  The usual dichotomy is between those who want to cut spending and those who want to to raise revenues.  Underneath each option is a wide range of specific proposals, but there is another force at play driving our state’s budget and our local economy, that until recently has seen little attention. 

Tax expenditures, the tax subsidies, incentives, exemptions, and deductions are all forms for tax carve-outs for various industries, special interests and population segments.  Together all 107 of these make up an estimated $1 billion in annual taxes we choose not to collect each year.  

The architect of our state’s tax code, Franklin Jones, established a “three-legged stool” of tax revenue composed of gross receipts tax, income tax and property tax.  However, over the last 30 years we have slowly whittled away at each leg; and now a better analogy for our tax code is “Swiss cheese.” We have 107 holes in our tax code.  Looked at another way, each time we pay any kind of tax, we pay 20% extra to cover all the special interests who don’t have to pay.

Some examples of tax expenditures include: boxing, cigarettes, trucking, low income rebates, rock crushing, cultural property, helium, motor vehicles and electronic ID manufacturing.  There are also 47 different subsidies for various extractive industries worth as much as $300 million. These tax carve-outs are so big we could cut them in half, and have enough money to balance the budget and lower gross receipts by 50 cents for all New Mexicans!

Beyond the dollars at stake there is also an issue of fairness and tax equity.  We want our government to work for all New Mexicans.  It doesn’t sit right that 20 percent of our government works great for some groups, and not for others.  Our tax policy and budget is a reflection of our priorities. Right now we trade subsidies for line items in our budget. Mathematically, this is like choosing boxing incentives over education funding. Some of these tax expenditures play an important economic development role and some support vulnerable segments of the population. The challenge is right now we don’t know which ones are beneficial to our state and which ones aren’t needed. 

Over the summer, the revenue stabilization and tax policy interim committee worked hard on legislation to establish an evaluation outlined in SB 47 – Tax Expenditure Budget.  This bill is the first step to a solid economic development, tax and budget policy in New Mexico is to get serious about tracking all our tax expenditures.  It would require the tracking of jobs incentives create, the return on investment and incremental tax dollars generated are knowable quantities that 39 other states track for their programs.  Rather than debating about these in concept, we should be supporting incentives that create jobs and eliminating the ones that are redundant, ineffective or based on political favoritism. 

 

It’s critical to not throw the “baby out with the bathwater” for the tax expenditures that really do help our state’s economy grow and our most vulnerable.  But we have to balance the economic benefit of lowering taxes for all business, or targeting specific high growth industries we want to develop in our state.  The challenge is that no one wants their particular “ox gored.”  Economic development decisions should be made based on strategy that combines high growth potential industries and our states unique competitive advantages.  It’s time to start making budget and tax decisions based more on an long term economic development strategy and less on scattershot initiatives.

 

Senator Tim Keller
District 17
Albuquerque’s East Central Gateway and the International District

Views: 21

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