Impact of Federal Tax Changes on New Mexico

Published on January 28, 2026.

New Mexico’s leaders have worked hard to improve the fairness of our state tax code in the last several years. The work has paid off as New Mexico recently made the most progress towards tax fairness in the nation.¹ However, the One Big Beautiful Bill Act (OBBBA) made changes to the federal tax code that give expensive tax breaks to the wealthiest households, at the expense of families who depend on income support programs. These provisions work against the tax fairness New Mexico’s leaders and communities believe in. While it includes tax changes that will help some working families, the deep cuts that are central to the bill will gut critical programs that help thousands of New Mexico families afford their basic needs without making up for those losses through fair changes in the tax code. Additionally, these tax breaks for the wealthy will cost New Mexico millions of dollars in revenue that the state could continue to invest in the future of our kids.

Child Tax Credit Changes Failed to Expand Its Reach to More Children in Poverty

Although the OBBBA increased the federal Child Tax Credit (CTC) to a maximum credit of $2,200 per child (and will index it to inflation this year, retroactive to January 1, 2025), this increase will not reach the children in families who would benefit the most. For example, 28% of children in the U.S. are in families with household incomes that are too low to qualify for the full credit, and that rate is even higher in New Mexico (44%)². As with many other aspects of the OBBBA, this change will primarily benefit families who already have more economic security and less need for a refundable tax credit. 

When the federal CTC temporarily became fully refundable through the American Rescue Plan Act in 2021, 95% of kids in New Mexico benefited, and an additional 32,000 children in the state were lifted out of poverty.³ When those changes expired in 2022, the rate of child poverty rebounded to previously higher levels, as families whose incomes were too low were once again excluded from receiving some or all of the credit. Congress could have improved the federal CTC by reinstating some of the COVID-era expansions that improved the well-being of New Mexico’s families and children. Instead, the OBBBA retained the inequitable structure of the CTC by increasing the credit amount while excluding the families who need it the most. As many as 159,000 children in New Mexico will not receive the $200 increase to the federal CTC.⁴

Corporate Income Tax Cuts in OBBBA Mean Lost Revenue for New Mexico

Along with these permanent personal income tax cuts, the OBBBA included several cuts to corporate income taxes that will affect New Mexico. Because of a practice called rolling tax conformity, the state automatically adopts the majority of federal tax changes as they occur.¹⁹ There are four specific tax changes in the OBBBA that are bad policy at a state level, because they mean forgoing revenue from taxing the nationwide profits of multistate corporations. This will effectively subsidize investments that occur largely or entirely in other states, and do not benefit New Mexico’s economy.²⁰ The four provisions are:

• Bonus depreciation, which allows businesses to write off the full costs of machinery and equipment in their first year (rather than spreading the cost over the life of the asset), bunching all deductions into one year to create a significant upfront tax break; 
• Research and experimental (R&E) expenses, which allow immediate and retroactive write-offs for qualified business expenses (although the payoff for these types of investments is seen over multiple years);
• Interest deductibility cap, which loosens the cap on how much interest on loans can be deducted by corporations, and allows large companies to excessively leverage debt to reduce taxes²¹ (particularly incentivizing private equity firms to acquire firms with debt to maximize their profits); and
• The Opportunity Zones program, which is intended to encourage investment in low-income and undercapitalized communities through deferred and reduced capital gains taxes. Instead, the program has generated few jobs or benefits, while providing tax windfalls to wealthy individuals and corporations for projects that likely would have occurred without the incentive.²²

Each of these provisions offers costly corporate tax breaks that are already costing New Mexico needed revenue. With the substantial changes to the tax code included in the OBBBA, New Mexico now has a window to re-evaluate those items in the federal tax that the state automatically conforms to, in order to prevent significant and unnecessary revenue losses.

Not every provision costs New Mexico revenue. In fact, one change in the OBBBA addresses tax avoidance of corporations that claim to have generated profits offshore by shifting to tax Net Controlled Foreign Corporation Tested Income (NCTI). New Mexico should capitalize on this positive change in the OBBBA by conforming to this provision, including 100% of NCTI in its tax base, subject to traditional factor representation.