New Mexico lawmakers recently approved a cut in the corporate income tax rate and special tax breaks for manufacturers and filmmakers. State officials estimate that the bill will eventually cost (PDF) the state about $55 million in lost revenue per year, but they admit that they’re not especially confident in their estimates. The Santa Fe New Mexican explains how the vote in the House literally came down to the final seconds of the legislative session, and says that House Speaker Kenny Martinez “acknowledged that some [House] members may not have been familiar with [the bill] at all.”
The largest single tax cut contained in the bill is a reduction in the corporate income tax rate from 7.6 to 5.9 percent, phased-in over five years. The Institute on Taxation and Economic Policy (ITEP), recently found that the corporate income tax is one of New Mexico’s few progressive taxes in a tax system that is sharply regressive overall. On top of this cut, lawmakers voted to give manufacturers the option to use a tax break known as single sales factor (PDF) that only benefits businesses selling most of their products out-of-state. The package also expanded tax giveaways for filmmakers that are widely understood to offer little economic benefit.
To pay for a portion of the cost of these cuts, the bill raises sales taxes on manufacturers, cuts aid to local governments (though it lets them raise their own sales taxes), trims some existing tax credits, and limits the tax avoidance opportunities available to some “big box” retailers through the adoption of mandatory “combined reporting” (PDF) for those companies.
Overall, however, the corporate tax rate cut represents a case of misplaced priorities in a state whose tax system is fundamentally unfair and where funding for things like higher education has been slashed in recent years.