By Kris Nordstrom, MPP
Director of Research
May 19, 2026

Too frequently, taxes get a bad rap. But the truth is, taxes are how we invest in one another and build the strong communities we all depend on.  New Mexicans benefit tremendously from public schools, roads, health care, and safety. Taxes also help thousands of New Mexico families afford the basics of a dignified life by creating opportunity, stability and a stronger future.

To sustain these shared investments, our tax system must be thoughtfully designed and sustainably built. A strong tax system should follow the following four principles:

  • Adequate – Generate enough revenue to make meaningful investments to build strong communities;
  • Equitable – Ensure that people’s taxes are based on their ability to pay;
  • Transparent – Give people a clear understanding of how public dollars are spent, holding lawmakers accountable how tax dollars are spent; 
  • Stable – Growing as our wealth and population expand, while avoiding wild fluctuations that make long-term investments in our people more difficult or tenuous.

New Mexico lawmakers deserve credit for making meaningful improvements to our tax system in recent years. Because of those efforts, we’ve had adequate funding to make bold investments in things like universal child care, a nationally recognized achievement that supports and strengthens working families. Our tax system has also become far more equitable, asking those in our state with a higher ability to pay their fair share toward investments that benefit us all. Just as importantly, legislative staff deserve recognition for providing clear and reliable reporting on how our taxes are collected and spent, increasing transparency and accountability in local government. 

New Mexico’s state revenue is highly reliant on oil and gas production. Nearly 45% of state revenue comes directly from extraction industries, leaving our budget vulnerable to the boom-and-bust cycles of global energy markets. The state also benefits indirectly through income and sales taxes generated by workers, businesses, and consumer spending tied to the industry. 

This reliance has delivered significant benefits, but it also carries potential risks. In recent years, growth in the oil and gas sector has generated record revenues that allowed New Mexico to make long-overdue investments, including universal child care. Strong revenues have also helped the state strengthen reserves, prepare for future downturns, and backfill funding as federal lawmakers have reduced critical support for low-income families including SNAP and Medicaid. 

But oil and gas revenues are notoriously volatile. When prices fall, state revenue falls with them, making it harder to sustain the programs and services that New Mexicans rely on. Legislative analysts estimate that every $1 change in the annual average annual price of oil has about a $57 million impact on state revenues. When oil and natural gas prices dropped sharply in 2016, lawmakers were forced to make painful cuts to public services, disrupting investments that families and communities depend on. 

Those years may feel like a distant memory amid today’s strong revenues, but they offer an important lesson: prosperity alone is not a plan. New Mexico’s next governor will have an opportunity to build on recent progress and help secure a more stable, sustainable fiscal future.  Now is a great time for candidates to explain how they will work with the legislature to continue strengthening the state’s tax system.

What should gubernatorial candidates be focusing on to raise fair, sustainable, and adequate revenue?

First, candidates should consider increasing the personal income tax for high-income earners. New Mexicans in the highest income brackets contribute less of their income in state and local taxes than do middle-income New Mexicans. By adding additional brackets at the high end of the income scale, lawmakers can ensure that more New Mexicans are paying their fair share for the goods and services that benefit us all. Other reforms, including an estate tax, a real estate transfer tax, a tax on wealth proceeds, or reforms to itemized deductions, could further diversify the tax base while making it more equitable across both income and race. 

Second, our next governor can consider working with lawmakers to reduce exemptions to the gross receipts tax (GRT). New Mexico’s version of the sales tax contains a litany of exemptions. These exemptions chip away at revenue collections, often to the benefit of wealthy New Mexicans in politically-connected industries. By eliminating exemptions, lawmakers can reduce the rate typical New Mexicans pay on purchases while also expanding the state’s most stable revenue source.

Finally, state leaders can expand on efforts to ensure that profitable corporations pay their fair share. That means strengthening the corporate income tax and continuing efforts to “decouple” from federal tax policies that often shift tax responsibility away from large corporations and onto working families. 

For now, high oil prices are helping fill state coffers. But those same high prices are raising the cost of living for New Mexico families. And while oil revenues may eventually decline, higher costs are unlikely to disappear as quickly which underscores why planning ahead matters. 

By acting now to diversify and strengthen New Mexico’s tax base, state leaders can better protect the investments that help families thrive, from child care and education to health care and economic opportunity. With thoughtful planning, New Mexico can build a more stable fiscal future that supports working families not just today, but for generations to come.