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.