HOUSE DEMOCRATS NEWS
Long-needed reforms increasing fairness in New Mexico’s tax code and diversifying the State’s revenue sources passed the Senate Tax, Business and Transportation Committee today.
Sponsored by Representatives Javier Martinez (D–Albuquerque), Christine Chandler (D-Los Alamos), and Matthew McQueen (D-Galisteo), HB 291 expands two proven poverty-reduction programs in the state: the Working Families Tax Credit (WFTC) and the Low Income Comprehensive Tax Rebate (LICTR). The legislation reforms what has been a relatively flat tax structure in New Mexico, creating three new tax brackets for the state’s highest income earners. It also removes the capital gains deduction for individuals selling stocks, bonds, and businesses, while still maintaining the benefit for the sale of New Mexico small businesses.
Passed in the Senate Taxation and Revenue Committee are amendments which remove the property tax increase on second homes, lowers the personal income tax rate threshold for the added income tax bracket, and increases the WFTC from 20% to 25%, and adds a one-year delayed implementation.
“As we work to recover from the pandemic and move our economy forward, we must not forget our hardest-hit, low-income families,” said Rep. Martinez. “HB 291 helps these hardworking New Mexicans weather the storm today by creating a fairer tax system, and will uplift them in the long-term by implementing policies proven to help pull families out of poverty. It also creates stable new revenue sources to diversify our economy away from its overdependence on oil and gas.”
“Families living on $25,000 should not be paying the same tax rate as those earning $250,000, but that’s what’s happening in New Mexico’s current system,” said Rep. Chandler. “By investing in our financially struggling families and allowing them to keep more of their hard-earned dollars, we are enabling them to spend more in their local economies and neighborhood small businesses.”
“It’s simply not right, and makes no financial sense, that affluent property owners who don’t even live in New Mexico receive tax breaks on their second homes, vacation properties, and investments,” said Rep. McQueen. “This is something that needs to be fixed, and I will continue to work on it in the future.”
The Working Families Tax Credit (WFTC) is the state-level companion to the federal Earned Income Tax Credit (EITC), a tax credit for low-income workers that 1 in 4 New Mexicans receive. HB 291 as amended today, raises New Mexico’s WFTC from 17% of the EITC to 25% after a one-year delayed implementation. In New Mexico, tax filers typically only receive the WFTC for one or two years as they advance in the workplace and earn a higher income. Roughly 97% of those who receive the credit have children, making the program one of the most effective methods to reduce child poverty.
Similarly, LICTR provides crucial support to those who need it most, especially for low-income seniors who are able to claim additional tax exemptions through the policy. LICTR was designed to offset the regressive impact of the Gross Receipts Tax, however it has not been adjusted to the cost of living in over two decades. HB 291 resets LICTR to the current cost of living, raising the qualifying income level from $22,000 to $37,000 annually.
New Mexico is an outlier in the nation, offering generous tax deductions and low tax rates to the highest income earners in our state. HB 291 makes our tax code more equitable, investing in policies that promote prosperity for all New Mexicans, and generating a stable source of revenue as we look to decrease our dependence on the oil and gas industries.
HB 291 passed the Senate Tax, Business and Transportation Committee with an 7-4 vote, and will be heard next in the Senate Finance Committee.
An overview of the amended HB 291’s main provisions is as follows:
- Increases the Working Families Tax Credit (WFTC) from 17% to 25% of the federal Earned Income Tax Credit with a one-year delayed implementation.
- Ends current exclusions from the WFTC for tax filers who use ITINs and for workers 18-24 years old.
- Expands the Low Income Comprehensive Tax Rebate (LICTR).
- Sets LICTR to the current cost-of-living, allowing those who earn $37,000 or less a year to qualify. LICTR has been stagnant since 1998, even as the cost of living has increased.
- This would mean that many more New Mexicans would have access to relief at a time when so many are struggling to afford basic necessities.
- Helps reintroduce a graduated income tax structure by creating three new tax brackets for the highest income earners in the state.
- Unlike much of the country, New Mexico has had a relatively flat tax rate for decades. In 2003, taxes for the wealthiest New Mexicans were cut from 8.2% to 4.9% and the top three tax brackets were eliminated. Currently, a family earning $25,000 pays the same top tax rate as a family earning $250,000.
- HB 291 reintroduces three tax brackets but keeps income taxes lower than they were pre-2003. The new brackets are:
- 5.5% for individuals making between $100K and $210K; joint filers making between $150K to $315K.
- 6.2% for individuals making between $280K and $415K; joint filers making between $415K and $622K.
- 6.5% for individuals making more than 415K; joint filers making more than $622K.
- Scales back the capital gains deduction.
- Limits the deduction to no more than $1,000 for most tax filers.
- The sale of a small business by a New Mexico business owner would still receive the full benefit of the capital gains deduction.
- Capital gains are the profits an investor gets when selling stocks, bonds, or businesses. Currently, tax filers can deduct 40% of this profit. The benefit of this deduction overwhelmingly goes to those making over $100K a year.
- New Mexico is one of only nine states where capital gains are taxed less than wages are.
Members of the public can track legislation on the New Mexico Legislature website, access committee meetings and House floor sessions via the Webcasts tab, or participate by Zoom to provide public comment on committee hearings. During the 2021 Legislative Session, the House of Representatives is focused on passing critical legislation while protecting the health and safety of the public, the staff, and the legislators.