SANTA FE — New Mexicans would save money on taxable purchases and Social Security retirement income would be tax-free — at least up to a certain amount — under a new tax package that has was introduced Thursday evening by a Senate committee.
The package includes two provisions requested by Governor Michelle Lujan Grisham – the tax exemption for Social Security benefits and a reduction in the gross state revenue tax rate.
But the proposal, technically a combination of four different Senate bills, also includes safeguards such as a provision that the sales tax cut would disappear if income levels decline significantly over the next five years. .
“There are a lot of trade-offs in this bill,” Senate Majority Leader Peter Wirth, D-Santa Fe, said during the Senate Tax, Business and Transportation Committee hearing.
The panel voted 9 to 1 to approve the measure, after removing a provision that would have barred New Mexico cities and counties from enacting local tax hikes for the next five years.
This came after several local government groups and lobbyists representing cities and counties expressed strong opposition to the provision.
“We shouldn’t tie the hands of local governments,” said Senate Minority Whip Craig Brandt, R-Rio Rancho.
Tax changes have become a hot topic at the Roundhouse during this year’s 30-day session, as New Mexico is awash in a revenue windfall driven by soaring oil production levels and rising of consumer activity.
An $8.5 billion budget plan approved by the House leaves about $400 million available for tax code changes during this year’s session.
The plan approved Thursday would cost about $278 million over the coming year, according to the state Department of Tax and Revenue. This means that other tax breaks could also be approved in separate bills.
Stephanie Schardin Clarke, the state’s tax secretary, told lawmakers the tax package unveiled Wednesday would benefit both New Mexico residents who pay gross receipts tax on most purchases and the economy. of State.
She also said it would help businesses because the gross receipts tax is levied on both goods and services, unlike the sales taxes that many states use.
“This bill will help New Mexico businesses better compete with out-of-state businesses,” Schardin Clarke said.
However, the tax package approved on Wednesday could still be subject to changes in the final week of the session, as some senior House Democrats argue that waiving Social Security benefits would primarily help wealthier residents. of the state – not low-income retirees.
But the Democratic governor said this week she was optimistic both tax proposals would eventually be approved by lawmakers.
“I’m very confident these are coming together the way they need to be,” Lujan Grisham told reporters.
Wirth said lawmakers had “heard loud and clear” from their constituents in favor of tax-exempting Social Security retirement income, but said he favored setting limits on who can benefit. tax relief.
Under the bill approved Thursday, single people earning more than $100,000 a year would not be eligible for the Social Security income tax exemption. For married couples filing jointly, the income threshold would be set at $150,000 per year.
New Mexico’s personal income tax wasn’t levied on Social Security benefits until the early 1990s, when a provision buried in a tax bill triggered the change.
According to a legislative analysis of the bill, reinstating the exemption with the proposed income caps would cost the state about $84 million in lost revenue in the coming fiscal year.
Tax legislation is now before the Senate Finance Committee.