Albuquerque Tribune
April 15, 2005
  
 
Op Ed
 

Reforms in Mind
Change Tax System To One That is
Fair, Simple and Affordable

By Kay Monaco, Executive Director
New Mexico Voices for Children


It's tax day. We all hate it but we don't all hate paying taxes. Millions of us see paying taxes as the dues we pay to live in a civil society. We believe that people and communities matter. We understand and appreciate what our taxes pay for: free public education through high school, and affordable state universities, police and fire protection, clean air and water, garbage collection, prisons, roads, healthcare for poor children, the disabled and elderly. A retirement system.

At the same time, though, I would like to see comprehensive tax reform that rewards hard work and promotes shared prosperity. The changes that have been made to New Mexico's tax system, mimicking federal tax changes, have moved us further and further away from a fair and simple tax system that promotes economic growth and broadens the middle class.

What we have now is anything but fair. Fairness means that the most successful among us should contribute a greater share to support the collective services we all enjoy. It is true that the wealthiest among us benefit the most from what the nation provides: our schools, the stability of our economy, public investments in research and innovation all contribute to the individual successes of many individual, wealthy Americans.

The changes in the federal and state tax systems have eroded this concept of fairness. At the federal level, households making more than $1 million received an average income tax cut of $123,500, while the average change for those in the middle 20% of income was about $650. In New Mexico, the personal income tax cuts enacted in 2003 will result in an average tax cut of about $13,200 for the top 1% of households, while those in the middle 20% of income will receive an average of $38. The tax cuts passed in 2005, purportedly to benefit low- and middle-income earners in New Mexico, will result in an average of tax cut $61.

Further, at both the state and federal level, we have shifted taxes away from unearned (passive) income like estate taxes and taxes on capital gains and dividends, and onto the work and wages of middle-class workers. In 2003, billionaire financier Warren Buffet stated that if dividend taxes were eliminated, he would pay a tax rate ten times lower that what his secretary paid. (Washington Post, May 20, 2003 at A-19).

Cutting personal income taxes was sold at the state and national level as a way to spur economic development. It hasn't worked. New Mexico's job growth and personal income growth have stalled, and there are no predictions that things will improve even as the tax cuts deepen over the next two years.

And, all of the recent tax changes have increased the complexity of the tax system. To understand the tax code requires an accountant or tax professional, whose services are usually affordable only by upper income earners. That's part of the reason why we hate tax day - it's all very complicated and it can be expensive and time consuming, too.

The reforms I'm looking for would restore fairness and provide hardworking families better after-tax income. All income - passive and earned - would be taxed at the same progressive rate structure. Estate taxes would be re-instated, with a change to exempt the first million dollars so that small business owners, ranchers and farmers could pass on assets without estate taxes. At the federal level, reforming the Child Tax Credit, and lowering the income threshold to $5,000 from the current $10,000 would allow many low wage families to access the credit. A flat rate refundable tax credit that applies to all retirement savings would be an incentive for low- income earners to save for retirement (now, the highest earners get a greater credit for retirement savings, which is upside down).

We should also examine our corporate tax structure at both the state and federal levels. A recent study found that 82 of the nation's largest corporations paid no taxes in at least one of the last three years, and 28 did not pay taxes in any of the years despite generating pre-tax dollars of $45 billion over the period. (Citizens for Tax Justice at http://www.ctj.org/corpfed04pr.pdf). In New Mexico, there are hundreds of tax incentives for businesses, with no opportunity to examine whether or not the incentives have stimulated job growth or had a positive impact on the economy.

I don't mind paying taxes, but I also want a fair and simple tax system that is affordable, and provides enough money for the fundamental services. It's not too much to ask that our tax policy be reformed with those interests in mind. It just takes leadership and vision.

 

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