New Mexico's legislature held a short special session this week to deal with a $600 million budget deficit. On Wednesday, they sent Governor Bill Richardson a $200 million tax-increase package. About two-thirds of the tax hike consists of increases in the state's sales tax, known as the Gross Receipts Tax (GRT). The state GRT rate will increase by 1/8th of one cent from the current 5 percent, and local governments will be required to apply their sales taxes, which range as high as 2 percent, to groceries. The state will also boost GRT collections by $12 million by enforcing collection of the "use tax" on purchases from out-of-state vendors.

While each of these changes fall most heavily on low-income families, two other components of the revenue plan are progressive. First, the state will raise $60 million — about a third of the total package — by eliminating an unusual income tax break that bizarrely allows state itemizers to take their state income taxes as a deduction against their state income taxes. (Seven other states, including Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont, also allow this deduction, and could shore up their personal income tax by eliminating this tax break.) Second, lawmakers increased — by a modest $5 million — the value of an existing low-income refundable tax credit.

Even with these two progressive measures, the tax package overall will still make New Mexico’s tax system somewhat more regressive.  Thankfully, however, the plan represents an improvement over at least two of the earlier versions (the Senate plan, and the legislative leadership plan) that were found to be even more starkly regressive in ITEP analyses produced this week.

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