ALBUQUERQUE-Every
year in New Mexico, the state allows almost $5 billion worth of general sales
tax exemptions and deductions, called tax expenditures. These tax expenditures
have become a significant drag on the state's ability to generate its nearly $6
billion annual budget.
That's the conclusion of a
new report, "Tax Expenditures and General Sales Taxes in New Mexico,"
released by the Fiscal Policy Project, a program of New Mexico Voices for Children.
This report follows "Moving Toward Revenue Transparency in New Mexico,"
released last September, which laid out the argument for adopting a more transparent
tax system.
Most general sales tax expenditures benefit
a relatively small number of businesses or individuals. For example, some of the
categories exempted from the general sales tax are agricultural products, construction
and manufacturing materials, and interstate trade. Goods that are purchased to
be resold are also not subject to the general sales tax. This was done to limit
so-called 'tax pyramiding,' or taxing an item more than once.
"This
is the most expensive group of deductions," said Gerry Bradley, Fiscal Policy
Program director and report author. "It costs the state $760 million a year,
yet every year lobbyists try to convince the Legislature that we have a tax-pyramiding
problem."
Whenever business and industry is successful
in getting another tax exemption or deduction, residents have to make up the difference
by paying a higher gross receipts tax (GRT) rate or the state has to cut back
its services.
A good example of this is the food and
medical services deductions enacted by the Legislature in 2004. The GRT was raised
half a percentage point to make up the $220 million a year in lost revenue.
The
Legislature enacts tax exemptions and deductions in the hopes that they will create
new jobs and strengthen the state's economy. But because neither the annual cost
nor alleged benefits of these exemptions are studied, no one knows whether they
help the state or simply erode the tax base.
NM Voices
for Children was successful in urging the Legislature to mandate annual tax expenditure
reports during the 2007 session, but the governor vetoed the measure. "We'll
consider bringing the bill before the Legislature again next year, particularly
since there appears to be a continued interest in ethics reform and government
accountability," said NM Voices Policy Director Bill Jordan.
The
entire report is available at http://www.nmvoices.org/attachments/tax_expenditures_3_07.pdf
