House adopts tax changes

SANTA FE — The state House late Friday adopted legislation that would reshape New Mexico’s tax system and raise about $356 million a year in new state revenue for public schools, government operations and roads.

The 134-page proposal would increase personal income taxes on some New Mexicans — especially high earners — and raise taxes on cigarettes and car sales.

It would impose new taxes on some hospitals, online retailers and e-cigarettes.

Tax breaks are also built into the proposal — including bigger tax credits for low- and middle-income families and new deductions for children and dependents.

In a three-hour debate, Republicans assailed the proposal as an unprecedented tax increase and “money grab” by the state government.

Democrats, in turn, said the proposal was necessary to stabilize government revenue and ensure New Mexico can support increased spending on education. The state budget, they said, is too dependent on the oil and gas industry — a fact underscored by a budget crisis two years ago that damaged the state credit rating.

“We cut through the fat several years ago,” Democratic Rep. Javier Martinez of Albuquerque said. “We cut through the bone. We got into the bone marrow to make ends meet. ... We relied way too much on one industry that went south on us.”

Republican lawmakers said the proposal would choke economic growth. They said it’s particularly ill-timed because of an oil boom that’s expected to create a $1.2 billion budget surplus this year.

“The fact that we’re considering this tax — the biggest tax increase in state history — during this surplus just blows my mind,” said Rep. Jason Harper, R-Rio Rancho. “This tax change hits all New Mexico families, not just the very affluent.”

The legislation passed 40-25 and now heads to the Senate with two weeks left in the session.

Legislative analysts estimate the tax changes would generate about $320 million in new revenue for public schools and other government operations, in addition to an extra $37 million for state and local road projects.

Passage comes as lawmakers craft a response to a landmark court ruling last year that found New Mexico is violating the rights of some students by failing to provide a sufficient education.

A $7 billion state budget proposal — now pending in the Senate — would boost spending nearly 11 percent over current levels. It includes a $449 million increase in public school spending.

House Speaker Brian Egolf, D-Santa Fe, said the tax package was necessary to meet basic obligations to the public.

“We have crumbling schools that we’re fixing,” he said. “Our teachers deserve more, and our kids deserve a chance. ... The stakes could not be higher.”

House Minority Whip Rod Montoya, R-Farmington, blasted the proposal as “a massive investment in government.”

The vote was largely along party lines. Two Democrats — Patricio Ruiloba of Albuquerque and Candie Sweetser of Deming — voted against the legislation, House Bill 6. Republican lawmakers held up signs that said “No!” as the vote was cast.

The proposed overhaul of the tax system would include:

• Revise the state’s income tax brackets to make the system more “progressive” rather than flat. It would largely repeal a 2003 personal income tax cut enacted under then-Gov. Bill Richardson, a Democrat.

The new top tax bracket would climb from 4.9 percent to 6.5 percent.

A married couple making $400,000 a year, for example, would see a $3,099 increase in their income taxes.

A married couple making $70,000 a year, by contrast, would see a $4 decrease.

• Change the tax systems for hospitals, with the goal of creating a level playing field for not-for-profit, government and for-profit hospitals, generating about $100 million in new revenue.

n Impose gross receipts taxes on sales made by online retailers to New Mexicans, including the imposition of the city and local parts of the tax.