HB 275 to Eliminate Personal Income Tax Draws Wide Testimony; Committee Tables Bill Pending Further Study

Representative Elaine Cenacortes opened debate on House Bill 275, which would repeal New Mexico's personal income tax. The sponsor framed the bill as a way to increase household purchasing power, attract workers and businesses, and diversify the state economy.

"Eliminating the personal income tax would diversify our economy. It would expand the purchase power of New Mexicans," Representative Cenacortes said in opening remarks, arguing the change would help families pay for necessities and make New Mexico more competitive for workers and companies.

Support witnesses stressed economic-growth arguments and pointed to the state's current budget outlook. Paul Gessing of the Rio Grande Foundation told the committee, "New Mexico has an estimated $13,600,000,000 in general fund revenue, while the governor's proposed budget is 10,900,000,000," and argued that substantial surplus and permanent-fund balances provide fiscal flexibility. Rick May, policy director for the House Republican caucus, told members the state could reallocate nonrecurring funds and claimed the measure would allow recurring tax relief without cutting core programs; he offered household examples: "For a married couple making taxable income of about $20,000, the tax lower would be about $504. For a married couple making $50,000, it would be $1,739. For a single person making $50,000 taxable income, the reduction in their taxes would be $1,941." (presentation)

Opponents warned of fiscal and program risks. Jacob B. Hill of New Mexico Voices for Children said, "the personal income taxes are the only tax we collect based on one's ability to pay," and argued repeal would disproportionately benefit the wealthiest and erode funding for cradle-to-career education, Medicaid and other services. John Lipschutz of the New Mexico Federation of Labor said his organization opposed the bill and urged using surplus funds to raise public-sector wages to fill vacancies: "one way to solve that vacancy rate would be to offer people more money," he said.

The Taxation & Revenue Department and the Legislative Finance Committee figures were central to committee questioning. Committee members noted a large difference between some claimed surplus numbers and the Taxation & Revenue Department's fiscal impact estimate: TRD's FIR estimated a revenue reduction of roughly $3.2 billion in a full year; proponents argued dynamic effects and a range of policy choices could materially lower the net recurring cost. LFC and proponents said they would seek additional dynamic analysis; LFC staff accepted the request to study longer-term effects of tax changes on economic growth.

Committee members also raised bond-rating and federal-match concerns. Several members said removing a stable recurring revenue source could affect the state's bond rating and the ability to meet federal match requirements for programs such as Medicaid and transportation. Questions focused on whether available nonrecurring funds and sovereign-wealth balances could be reliably used to cover a recurring revenue gap.

After more than an hour of testimony and extended member debate the sponsor asked the committee to table HB 275 for further study. The motion to table was made and seconded; the committee approved the motion and the bill was tabled for additional interim work on modeling, bond-rating effects and targeted alternatives to repeal.