Tax Reform

State of the State: New Mexico

We are in a high-stakes competition with other states.

New Mexico Governor Susana Martinez recently gave her State of the State address, opening the 2016 legislative session. The governor’s address reflected the crossroads at which New Mexico currently stands.

New Mexico’s economy is highly dependent on its energy sector, and because of that, the government leans heavily on that sector for revenue. A recent drop in oil prices threatens to impact the state’s revenue stream.  Martinez acknowledged this:

I recognize that revenues are uncertain due to persistently low energy prices, and that most agency budgets will have to be held flat. This means that, with the limited new revenue we will have, we have to prioritize more, and better.

Flattening the growth of spending, whether by necessity or choice, is admirable. However, shortly after emphasizing the need to restrict spending, Martinez proposed a slew of potentially costly changes to increase teacher compensation, including an expanded loan repayment program, a 20 percent increase in starting pay, new scholarships for individuals who pledge to teach in New Mexico, and access to debit cards for classroom expenses.

Education spending is traditionally a large part of any state’s budget, and New Mexico does have room to improve its system. New Mexico’s 2013 NAEP Ranking was just 32nd in the nation, and it received a C-minus education policy grade in the 2015 edition of the ALEC Report Card on American Education. Hopefully the programs proposed by the governor speak to her dedication to better priorities, rather than simply increased spending.

Martinez later pivoted to address New Mexico’s economic competitiveness, the importance of which cannot be overstated. The ALEC Center for State Fiscal Reform recently released the full eighth edition of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. Since reaching a high of 25th in the nation in 2009, New Mexico’s economic outlook ranking has hovered in the 30s, placing it consistently in the bottom half, and 34th in this year’s edition.

Some of New Mexico’s policies have been good for the state, and others have not. The state’s top marginal personal income tax rate is a very competitive 4.9 percent, it levies no estate tax, and it has the fifth-lowest property tax burden in the nation. However, New Mexico also ranks 48th out of the 50 states for sales tax burden, 42nd for number of public employees per 1000 residents, and the Land of Enchantment has a civil liability system that overburdens businesses. The end result is a mid-range ranking in a region with high-performing states like Texas, Utah and Arizona.

New Mexico already has a road map to competitiveness, highlighted by Martinez herself, who said:

We cut our business tax rate by 22 percent…We curbed the double and triple taxation of goods and services in construction and manufacturing. Our tax rate on manufacturing has been cut by 60 percent, to the lowest in the region! And our taxpayer friendliness score has soared from a “D” to a “B.”

Broad-based tax reforms, like the ones Governor Martinez highlighted, are the best way to make a state more attractive to businesses and individuals. Of course, the governor’s best proposal relates to ending the practice of forced unionization and the forfeiture of dues to merely have an opportunity to work. If policymakers dedicate themselves to reforming some of the state’s less-attractive economic policies, they can promote a healthy and diversified economy for hardworking New Mexicans.

This is an entry in the ALEC Center for State Fiscal Reform series, “State of the States 2016,” which will perform analysis of tax and budget issues raised in every state of the state address delivered by America’s governors. Check back frequently over the coming weeks to see the results for your state.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth