By Kris Nordstrom, MPP
Director of Research
May 25, 2026
The Legislative Finance Committee (LFC) recently published a powerful new report examining whether targeted tax breaks actually deliver economic growth for New Mexico. The report found the special exemptions for targeted industries are a drain to state revenues and do little to help grow New Mexico’s economy. In many cases, these targeted tax breaks weaken New Mexico’s economy by diverting resources away from proven investments, which help New Mexicans thrive.
Economic development tax expenditures are special tax breaks including exemptions, deductions, or credits intended to stimulate economic growth by attracting new business to New Mexico or helping existing businesses expand.
The LFC evaluated the effectiveness of these tax breaks by using two key measures:
- Return on investment (ROI): Measures how much a tax break grows the state’s economy, based on increases in gross domestic product (GDP).
- Return in revenue: Measures whether the tax break ultimately increases or decreases state revenue.
Together, these metrics help determine whether targeted tax incentives generate broad economic benefits or simply reduce state revenues without delivering meaningful growth.
What can New Mexico do?
There’s little justification for continuing to invest public dollars in policy that fails to deliver results. Legislators should move swiftly to eliminate ineffective tax breaks and prioritize investments that strengthen New Mexico’s economy and communities. At a minimum, legislators should end the $176 million in incentives identified as draining state revenues while weakening, rather than strengthening the state’s economy.
| New Mexico Economic Development Tax Expenditures with Negative ROI and Return in Revenue |
|||
| Expenditure | Economic ROI | Return in Revenue | FY 25 Amount (millions) |
| Sale of Software Dev. Services Deduction | -6% | -96% | $17 |
| Hosting World Wide Web Sites Deduction | -24% | -96% | $2 |
| Apportionment election of CIT for Headquarters | -36% | -96% | $8 |
| Sales of Services to Manufacturers Deduction | -36% | -96% | $37 |
| Commercial Vehicle Near Border Exemption | -37% | -95% | $1 |
| DoD Directed Energy & Satellites Deduction | -37% | -96% | $11 |
| Rural Job Tax Credit | -42% | -96% | $1 |
| Apportionment Election for Manufacturers | -42% | -96% | $81 |
| Border Zone Trade Support Company Deduction | -57% | -96% | <$1 |
| Durable Medical Equipment Deduction | -63% | -98% | $10 |
| Jet Fuel Deduction | -73% | -98% | $1 |
| Aircraft Sales or Services Deduction | -73% | -98% | $5 |
| Sales to Credit Unions | -79% | -99% | $2 |
| Small Business Saturday Deduction | -86% | -99% | $1 |
Source: LFC, Tax Expenditure Assessment – Economic Development Tax Expenditures, May 2026
Lawmakers should continue to monitor the effectiveness of remaining tax expenditures to ensure public dollars are producing meaningful benefits for New Mexicans. By ranking economic development tax expenditures using clear measures of performance, such as return on investment, impact on state revenue, and whether they meet defined economic goals, policymakers could make smarter, more transparent decisions about which incentives deserve continued public support. Bringing this data together in one place, alongside information like cost, beneficiaries, and sunset dates, would create a more accountable system where ineffective tax breaks are regularly reviewed and phased out if they fail to deliver results.
To the extent lawmakers consider new economic development tax expenditures, they should design them with strong accountability measures from the start to ensure expenditure performance can be monitored, its costs are limited, and its benefits reach working families. The LFC report provides six recommendations for adding such best practices.
New Mexico Voices for Children would add a seventh recommendation to LFC’s list: prioritize unionized workplaces. Unionized workplaces typically ensure a greater share of profits reach the pockets of workers, who are likely more able to spend it from the ground up. Additionally, unionized industries are superior at promoting intergenerational economic mobility, ensuring that the children of workers are more likely to benefit as well.
Ultimately, the LFC report raises serious questions about whether economic development tax expenditures should be at the bottom of legislative priorities. Evidence-based policies directed towards children and families with low incomes consistently demonstrate stronger returns. Direct support to the people who need it most, not disproven trickle-down schemes, is what delivers shared benefits and flourishing communities.
A note on measuring policy effectiveness
While ROI and GDP growth are useful tools for evaluating and measuring certain economic development tax expenditures, they are not the only (or necessarily the best) measures of whether public policy is working. ROI calculations require assigning dollar value to outcomes, which can overlook benefits that are harder to quantify, and yet are deeply more important to New Mexicans, such as reducing hunger, improving well-being, or strengthening communities across racial and economic lines. Likewise, focusing narrowly on GDP growth can obscure who actually benefits from economic gains and whether that growth comes with tradeoffs for public health, environmental sustainability or economic equity. At New Mexico Voices for Children, we support a more holistic approach to evaluating public investments, one that not only asks whether policies grow the economy, but whether they improve lives and expand opportunity for all New Mexicans.