(Viewpoint, Fall
2004)
A
recent Albuquerque Journal cartoon shows a weight-lifting Governor Richardson
holding a giant bar bell with one arm. The joke is that the heavy weights at each
end of the barbell – Medicaid and tax cuts – are supported on barrels
labeled “energy prices”. The joke isn’t so funny if funding for
Medicaid evaporates when oil and gas prices drop.
The
Governor is banking on the high revenue from oil and gas to support essential
health care for children, the disabled and the elderly (through Medicaid) and
still have enough to pay for the tax cuts he has already passed – plus those
he proposes for the coming legislative session.
This
is a risky gamble (see Viewpoint, Summer 2004, www.nmvoices.org, for a discussion
about the volatility of oil and gas revenues).
The
tax cut passed in 2003, and phased in over five years, reduces the top personal
income tax rate from 8.2% to 4.9%. They have largely benefited those who are already
wealthy (i.e., those who pay the top rate). The same legislation also included
a significant reduction in the capital gains tax (paid on sale of an asset such
as stocks) – which, of course, also primarily benefits higher income people.
These
tax cuts have not only failed to benefit moderate and low-income people, they
have so reduced tax revenues that we now have under-funded priorities – like
quality healthcare for children. Last year, Medicaid needed $40 million more than
was appropriated. Adding in the uncollected federal funds, that is a $160 million
reduction in medicaid funding.
This
Medicaid cut hurt everyone. The Presbyterian Health Maintenance Organization budget
was cut by $40 million. To absorb the cut, Presbyterian lowered reimbursement
rates for some providers. In Carlsbad, two family practice doctors are closing
their practices. Parents are not able to obtain needed medication for their disabled
children.
The
lack of adequate money to fund the essentials is now, with the income tax cut,
a built-in problem. It will happen each year until tax policy is fixed.
Economists
call this problem a “structural deficit”. It simply means that the growth
in revenue is not keeping pace with the growth in the cost of providing essential
state services. If the problem is not fixed through tax revenues that can be counted
on each year (recurring and predictable), the difference between expenses and
income will widen. As the structural deficit grows, the pressure to decrease spending
– or to increase taxes – increases.
And,
under current tax policy, the structural deficit is guaranteed to widen. The state
budget loses about $166 million this year alone from the personal income tax cut
– and $360 million in 2007 – and every year after. (For further
discussion about state budget and tax policy, see the last two issues of Viewpoint,
www.nmvoices.org).
The
pressure to continue to cut the basic services that benefit everyone will intensify.
The
solution to a revenue crisis, which is what we have, is to increase revenue. The
structural deficit needs to be fixed. A freeze on further implementation of the
personal income tax cut would, at least, stop the budget hemorrhage at the current
revenue loss of $166 million each year.
The
Governor is now proposing another tax cut - this time for middle class families.
While we support fiscal relief for low and middle income families, this cut would
cost the state budget another $40 million per year - making the structural deficit
even worse. Of course, everyone wants a tax cut. The problem is that this one
will only increase the risk that essential services will be cut.
A
reporter from the Albuquerque Tribune recently interviewed shoppers at Wal Mart
about their views on the proposed middle class tax cut. The typical response was
that the value of the services they receive (such as healthcare) was much greater
than the $70 or so they would gain through the tax cut. People understand that
tax cuts do not make sense inthe face of under-funded priorities such as education
and healthcare.
A
Better Approach to Tax Policy Reform
A tax cut for middle class New Mexicans
should be paid for with a tax increase on the highest income earners (who have
already benefited significantly from the 2003 tax cuts). This could be done by
reinstating the estate tax, and by closing a loophole currently available to higher
income taxpayers in New Mexico. Please see our website Fiscal Policy Project page
for more information on these tax proposals too.
These
two progressive tax reform proposals, combined with a freeze on further implementation
of the personal income tax cut passed in 2003, would make New Mexico’s tax
policy more fair, and would generate the revenues better used for services.
