New Mexico cuts taxes to stimulate economy

SANTA FE, N.M., Feb. 19 (UPI) -- New Mexico has cut taxes at the same time most states are facing record budget deficits and considering spending cuts or tax hikes.

Democratic Gov. Bill Richardson signed the tax-cut bill Friday after it passed the Legislature unanimously with bipartisan support. The cut in personal income and capital gains taxes will cost the state an estimated $300 million in revenue, but supporters believe the trade-off is worth it.


"Make no mistake," Richardson said. "The point of cutting the personal income tax and the capital gains cut is to send an unmistakable message to business leaders -- here in this state and across the nation: New Mexico is open for business."

New Mexican ranks near the bottom in per-capita income among the states, and the economy badly needs the stimulus of new business. The state government is also in better financial shape than the 36 other states facing nearly $70 billion in deficits in fiscal 2004.

Larry Waldman, senior economist at the University of New Mexico's Bureau of Business and Economic Research, said the battle for the tax cut actually began during the previous administration of Republican Gov. Gary Johnson.


"Johnson ran an extremely tight ship fiscally," he said Wednesday. "While other states were kind of sinking below the water level, New Mexico was staying above and not only balancing the budget but having a substantial reserve fund."

Johnson tried to get a tax cut, arguing that it would stimulate business, but he could never win over the Democrat-controlled Legislature. "The problem was there was a big, big personality conflict between the governor and the Legislature," he said.

When Richardson was elected, Waldman said, business and government leaders decided it was time for the tax cut to turn around the state's economy. He said he thinks they felt that it was an idea whose time had come.

Waldman said the argument was that $300 million in revenue might be lost, but the state would recoup it through more income and gross receipts taxes. He said there's truth to that argument, but he added, "in my opinion it will not be nearly enough to reimburse the state for that."

The New Mexico personal income tax rate will drop from 8.2 percent in the highest bracket to 4.9 percent in five years, gradually eliminating three tax brackets. The state's capital gains tax will be cut in half over the same time span.


Richardson, a former Clinton administration Cabinet member, campaigned on a platform that New Mexico must become competitive with surrounding states, said Billy Sparks, the governor's communications director. Passage of the tax-cut package was the governor's first legislative priority.

Richardson is already on the road looking for new business. He has been to the Silicon Valley to visit high-tech firms, the world economic summit in Davos, Switzerland, and plans to visit Chicago on Thursday to attend a conference on border industry, Sparks said.

The New Mexico tax legislation also calls for formation of a blue-ribbon tax reform commission to look at overhauling the entire New Mexico tax code, followed by a special legislative session in the fall of this year to consider the panel's recommendations.

The New Mexico story unfolds at the same time other states are searching everywhere for more money to plug revenue holes in their budgets. Arkansas and Oklahoma this week are dipping into special funds to find cash for Medicaid and education.

In Arkansas, Gov. Mike Huckabee plans to borrow $18 million from the state's tobacco settlement money to cover a Medicaid shortfall. Medicaid costs have climbed 14 percent in the last two years.


Huckabee, a Republican, is one of only a handful of governors who has proposed a tax increase. He proposed a five-eighths-cent increase in the sales tax but it has not received a warm reception from legislators who are looking for spending cuts.

In Oklahoma, the Senate is expected to vote Thursday on a House-passed resolution to take $25.5 million out of the state's rainy day fund to aid education programs. Democrat Gov. Brad Henry declared a fiscal emergency to make the money available.

Henry is also pushing the Legislature to authorize a statewide vote on a lottery that would produce $300 million for education, but not right away. Legislators are evenly split on the lottery vote and the outcome is uncertain at this point.

(Reported by Phil Magers in Dallas)

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