Road oadma map to o a a Str tronger New w Mexico co Presented - PowerPoint PPT Presentation

Road oadma map to o a a Str tronger New w Mexico co Presented to the Revenue Stabiliz bilizatio ion and d Tax Polic licy Commit itte tee October 30, 2018 Jam ames J Jimenez, Executive Director, New Mexico Voices for Children Amber W Walli llin, Deputy Director, New Mexico Voices for Children Kelly O O’Donne onnell, O’Donnell Economics

Are re kids s pri rioritized in n the the bud udget? Issue ssues s in n the the tax ax cod code • “Don't tell me what you value; show me your budget, and I'll tell you what you value.” We proportionately spend money in the right • areas. • But there’s another side to the budget: We don’t make kids and families a priority in tax • expenditures. We don’t raise enough revenue through the tax • code to support education, health, public safety, and infrastructure needs. 2 nmvoices.org

Whe here are are w we now now? NM’s families and NM d kids ds fac ace bi big challenges 26% of NM Kids are food insecure Ranked worst in child well-being Ranked worst in education 125,000 kids without 50 th 50 enough to eat 42% of working families are low-income Some of the highest poverty rates in US among: children • people who work full-time, year-round • people with a bachelor’s degree or higher • Sources: Annie E. Casey Foundation; U.S. Dept. of Education; U.S. Census American Community Survey data; Feeding America; U.S. Dept. of Agriculture 3 nmvoices.org

How di How did w d we g get he here? We’ve tried d to tax cut ut our way to pr prospe perity Ac Actions ns PIT: personal income tax cut in 2003 • CIT: corporate income tax cut in 2013 • GRT: gross receipts tax carve-outs • Results Unbalanced and inadequate revenue system • Increased reliance on volatile oil and natural gas • Inability to fund services • 4 nmvoices.org

The he re resu sults of of bad ad tax ax pol policy: A A K-12 2 edu ducation exampl ple 50 th in the nation in educational outcomes. • Recently lost a school funding lawsuit that highlighted • underfunding and racial and ethnic disparities. 14% cut in per-pupil K-12 spending from 2008-2018. • Cuts to special education funding, resulting in an even • greater loss of federal dollars for special ed. Near the bottom in educator pay. • Teacher shortages. • 5 nmvoices.org

Whe here e else i it t got ot us: us: Pr Programs have be been n grossly unde derfunded Large vacancy rates across state government. • Credit downgrades. • 35% cut in per-pupil higher education spending, leading to steep tuition • increases. Enrollment in child care assistance has dropped more than 20% since 2010. • Cut U.I. benefits, including the increment for children of unemployed workers. • Underfunding of the Medicaid program leading to cuts in provider payments. • Over a billion dollars drained from various targeted funds that may need to be • restored. Tax ax c cut uts mad ade our our t tax ax system e eve ven m mor ore r regressive A AND ND we we have have hun hundreds of of • mill llio ions of dollars l les ess AND t the t e tax cuts f fail iled t to crea eate jobs bs. 6 nmvoices.org

Reven enue e Ou Outlook In 2008 the state general fund was $6.1 billion • Would be $7.1 billion in inflation-adjusted dollars • For FY19 it was $6.3 billion… • Bust-to-boom cycle continues • 2017: $300 million shortfall • 2019: $1.2 billion+ surplus • Sustainability risk • 85% of surplus is oil and gas • How much should be considered recurring? • Unique opportunity to re-structure the tax system • While shoring up reserves, addressing infrastructure, adding • progressivity, raising revenue, and spending prudently 7 nmvoices.org

Prin Principles of good d tax po poli licy 1. 1. Adequacy: Revenue should raise enough to fund needed government services. 2. Sustain 2. inabil bilit ity: Tax base should be as broad as possible and avoid excess reliance on one tax. 3. 3. Equit ity: Taxpayers should be treated fairly. 8 nmvoices.org

Our t ur tax ax sy system f fai ails al all thr three nmvoices.org

Our r tax pa package pr propo posal Adds progressivity to NM’s tax • system Reduces reliance on volatile oil • and natural gas revenues Increases the budget pie • 10 nmvoices.org

Key tax po policy pr proposals Personal Income Taxes (PIT) • Gross Receipts Taxes (GRT) • Corporate Income Taxes (CIT) • 11 nmvoices.org

PI PIT: Restore re pr progre ressivity ty • 2003 personal income tax cuts slashed PIT collections • E&Y study: PIT is a very stable revenue source • But New Mexico underutilizes PIT • NM residents are relatively less burdened by PIT than in • peer states nmvoices.org 12

PI PIT: Restore re pr progre ressivity ty Repeal the 50% capital gains deduction • Increase rates for higher earners • Primarily over $100K AGI (97% of new revenue) • 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 $24,000 $26,000 $28,000 $30,000 $32,000 $34,000 $36,000 $38,000 $40,000 $60,000 $80,000 $100,000 $140,000 $180,000 $220,000 $275,000 $375,000 $500,000 $900,000 PROPOSAL Married Filing Jointly Rate CURRENT Married Filing Jointly Rate Increasin ing rate tes s for r hig igher earners and d re repe peali ling th the capit pital l gains de dedu ductio ion wo would ld rais ise $250+ millio illion 13 nmvoices.org

PIT PIT: Ena Enact a a Chi Child Tax ax Cre Credit • NEW tax credit of $25 to $175 per child • Linked to improvements in health, education, and economic outcomes • 75% would go to families of color • Would help to address child poverty • Would help to address the tax on kids that resulted from the new federal tax law Enac acting ng a new w credi dit for all chi hildren would cost $67 $67 million 14 nmvoices.org nmvoices.org

PIT: I Increa ease t e the W e Working Familie lies Tax Credit it • Claimed by 1 out of 4 filers • 96% of the value goes to working families with kids • Proven to incentivize work and improve outcomes for kids • Good for business, the economy, and 200,000 NM families Increasing WFTC C to 20% 20% of EITC would cost $55 $55 million 15 nmvoices.org

PIT IT: : Inc Increa ease LICTR ICTR • Targeted to very low-income taxpayers • Was designed to offset regressivity, but returns only $20 million of the $2 billion GRT to the poorest of the poor • Hasn’t been updated in 20 years Inde dexing LICT CTR to 1998 998 CPI CPI wo woul uld cos ost $36 $36 million 16 nmvoices.org

GRT: Da Damage do done • Over the years, we’ve carved out preferences • Rates have increased, especially in some localities • Taxpayers are treated differently • E&Y study: Disproportionate benefits to large businesses • Complicated • GRT is regressive and relatively volatile • 16 nmvoices.org

GRT: Clo lose lo loopholes, lo lowe wer rate • Tax internet sales • Lower state rate by ¼ percent • Repeal ineffective breaks • Taxing non-profits is problematic • Don’t tax food Taxing interne net sal ales wou would raise $25+ $25+ million 17 nmvoices.org

The he low ower y your our inc ncome, the the hi higher the the sha share that that is s sp spent on on foo ood Percent of income spent on food at home by income quintile (2017) 25% 22% 20% 15% 12% 10% 8% 6% 5% 4% 0% Lowest 20% Second 20% Third 20% Fourth 20% Wealthiest 20% Source: BLS, Consumer Expenditure Survey, 2017 18 nmvoices.org

SNAP be benefits are are not not ade adequate to o addre ress ss food od insecu curi rity ty 19 nmvoices.org

New Mexic xicans strongly ly opp oppose a a foo ood t tax ax 20 nmvoices.org

CIT: S Sharin ing r responsibilit ility Corporations should be responsible for paying their fair • share for use of NM’s land, water, roads, and services too. Lower rate than national average. • 2013 cut significantly reduced revenues. • From $240 million average pre-2013 cut to $143 million since • Average Share of Total Income Average Share of Total Income from Corporate Income from Corporate Income Pre CIT Cut Post CIT Cut 10% 17.4% CIT as share of all income taxes paid, CIT as share of all income taxes paid, average FY14-FY18 average FY02-FY13 21 nmvoices.org

CIT: Sharin ring re resp sponsibility • Raise corporate tax rates • Enact mandatory combined reporting Ra Raising rat ates and nd ena nacting MCR CR wo would d rai aise more than an $1 $125 25 million 22 nmvoices.org

Ou Outstanding g need eds We hav ave some loo ooming financial respo ponsibi bilities Massive infrastructure needs • Educational lawsuit responsibilities • $1 billion in swept funds since 2008 • Problematic agency vacancy rates • Outstanding tax refund claims • Public employees retirement system needs • Film subsidies • Shoring up reserve funds • 23 nmvoices.org

Summar ummary y numb numbers Restore ~$600 million • in revenue Spend ~ $300 million • through the tax code to help NM thrive nmvoices.org