There has been a lot of coverage about the negotiated tax package passed by the Legislature during the special session to shore up the state budget, including this ridiculous claim in an Albuquerque Journal editorial from March 11:
“There is a big state income tax hike ($193 on average per filer, raising an estimated $66 million) brought about by elimination of the deduction for sales tax. It is, in fact, a tax on a tax.”
Presumably this is a reference to the measure that would disallow individuals who itemize from deducting their state and local taxes on their state income tax forms. What the Journal doesn’t tell you is that this will affect only about 20% of NM tax filers. The other 80% of the state’s tax filers use a standard deduction that doesn’t allow them to deduct these same taxes, so they would not be subject to what the Journal calls “a tax on the tax.”
The phrase “a tax on a tax” makes no sense in reference to this measure. What the Legislature did was remove a deduction that never should have been there in the first place.
New Mexico is only one of only a handful of states that currently allows this deduction, probably because most other states have figured out that allowing it doesn’t make any reasonable fiscal sense. Indeed, the only real effect of allowing the deduction has been to reduce state tax liabilities for wealthy individuals — that is, those most likely to itemize on their state tax forms.
New Mexico Voices for Children developed this table to clearly show who benefits the most from this policy (click on the chart to view):
According to the Taxation and Revenue Department’s analysis about 70% of the increased liability would come from households with an ADJUSTED gross income of $100,000 or more. Only 4% would come from households making less than $50,000.
Therefore, the Journal’s claim that removing this deduction would raise taxes “$193 on average per filer” is misleading at best.
A look at the facts serves to underscore the progressive nature of this policy. In fact, it is the only revenue enhancement in the tax package that actually makes the rich pay their fair share.
It is clear that whomever wrote the editorial didn’t do their homework on the actual policy but instead merely inserted some boilerplate talking points courtesy of corporate lobbyists who opposed the measure during the legislative session.