New Mexico s Tax System in a National Context

New Mexico’s Tax System in a National Context NMTRI Annual Tax Policy Conference May 2011 Joseph Henchman Vice President of Legal & State Projects Tax Foundation henchman@taxfoundation. org www. Tax. Foundation. org 1

About the Tax Foundation • 74 years of objective data and analysis – Founded in 1937 • Independent researchers gathering data and • Providing objective information to counsel government, business, and citizens on public finance – Federal, state, and local tax issues – Testimony, newspapers, radio, television, website, and mass distribution of our publications to policymakers and general public – Non-profit, non-partisan 501(c)(3) • Advocate of a principled approach to tax policy, based on economic research 2

Principles of Sound Tax Policy Simplicity Administrative costs are a loss to society, and complicated taxation undermines voluntary compliance by creating incentives to shelter and disguise income. Transparency A good tax system requires informed taxpayers who understand how tax assessment, collection, and compliance work, with open hearings and fully explainable and replicable estimates. Neutrality The fewer economic decisions that are made for tax reasons, the better. The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products. Stability When tax laws are in constant flux, long-range financial planning is difficult. Lawmakers should avoid enacting temporary tax laws. 3

Tax Foundation Annual Studies • Facts & Figures – Rates, collections data, and rankings for each state and each type of tax • Plus state debt, average local sales taxes, lottery revenue • New this year: cell phone taxes – First published in 1941 – 15, 000 print copies & 100, 000 downloads each year – Buy on Amazon for $3; contact us for bulk pricing 4

Tax Foundation Annual Studies • Tax Freedom Day – Estimate of how long Americans have to work into the year to pay their combined federal, state, and local tax bill • Tax Freedom Day 2011: April 12 – 102 days into the year; 27. 7% of income; +3 days from ’ 10 – Recession reduction of tax revenues, extension of 2001 -03 tax cuts, new payroll tax cut • Two weeks earlier than latest ever in 2000 (May 2) • Tax Freedom Day including federal deficit: May 23 – Each state has a Tax Freedom Day • New Mexico: March 31 • Earliest: Mississippi (March 26) • Latest: Connecticut (May 2) 5

Tax Foundation Annual Studies • Tax Freedom Day 6

Tax Foundation Annual Studies • State-Local Tax Burdens – Percent of residents’ income paid in taxes • Adjusts for tax burden exporting by states • More relevant than collections divided by income (Alaska has highest tax collections but Alaskans have lowest tax burden) – Does not account for value of government services or regulatory benefits/costs or tax collection efficiency – U. S. Average (2009): 9. 8% ($4, 160) • Highest: New Jersey: 12. 2% ($6, 751) • Lowest: Alaska: 6. 3% ($2, 973) • New Mexico: 8. 4% ($2, 997) – 41 st highest – Historical data for each state back to 1977 • New Mexico rose sharply in the 1990 s and then dropped 7

Tax Foundation Annual Studies • State-Local Tax Burdens: New Mexico 8

Tax Foundation Annual Studies • State Business Tax Climate Index – How states raise their taxes – Ranks the competitiveness of the 50 state tax systems and provides roadmap for improving – Overall rank and five subindex ranks • Individual income tax, Corporate income tax, Property tax, Sales tax, and Unemployment Insurance tax; 112 variables – 2011 Index (using July 1, 2010 snapshot): • New York worst, South Dakota best • New Jersey (48 th) not worst for first time since 2006 • New Mexico: 33 rd – CIT (31 st), IIT (20 th), Sales (45 th), UI (16 th), Property (1 st) 9

Tax Foundation Annual Studies • State Business Tax Climate Index 2011 – Utah: 9 th – Texas: 13 th – Colorado: 15 th – Oklahoma: 30 th – New Mexico: 33 rd • CIT (31 st), IIT (20 th), Sales (45 th), UI (16 th), Property (1 st) – Arizona: 34 th 10

Tax Foundation Regular Studies Sources of Revenue New Mexico: – IIT (15. 7) – CIT (4. 6%) – Sales (35. 7%) – Property (14. 5%) – Other (29. 5%) Source: Tax Foundation calculations based on data from Census Bureau state and local government finance data for fiscal year 2008. 11

Tax Foundation Regular Studies • Tax Collections – State Individual Income Tax Collections • New Mexico: $467 (40 th) State Collections per capita (2009) Rank (2009) $805 -- New York $1, 889 1 Connecticut $1, 816 2 Massachusetts $1, 614 3 Oregon $1, 429 4 Minnesota $1, 324 5 U. S. 12

Tax Foundation Regular Studies • Combined State & Average Local Sales Tax State Rank Tennessee 9. 44% 1 California 9. 08% 2 Arizona 9. 01% 3 Louisiana 8. 69% 4 Washington 8. 61% 5 • NM: 5. 125% state + 2. 01% average local = 7. 11% combined (18 th) • NM’s GRT is one of the broadest sales taxes in the United States. Select Cities: New York City Los Angeles Chicago 8. 875% 9. 75% Source: U. S. Census Bureau; Tax Foundation; Sales Tax Clearinghouse 13

Tax Foundation Regular Studies • State Corporate Rates in International Context OECD Overall Rank Country/State Federal Rate 2010 35 35 35 35 35 35 30 Top Combined State/Provincial Corporate Tax Federal and State Rate (Adjusted)1 12 41. 6 9. 99 41. 5 9. 8 41. 4 9. 5 41. 2 9. 4 41. 1 9. 36 41. 1 9 40. 9 8. 93 40. 8 8. 84 40. 7 8. 7 40. 7 8. 5 40. 5 8. 25 40. 4 7. 9 40. 1 7. 81 40. 1 7. 6 39. 9 7. 5 39. 9 7. 1 39. 6 7 39. 6 11. 51 39. 54 OECD Overall Rank Country/State Top State/Provincial Federal Rate 2010 Corporate Tax Rate 1 Source: OECD; Tax Foundation. 2011 Data Montana 39. 5 35 6. 9 39. 5 35 6. 75 39. 4 United States 35 6. 56 39. 3 Alabama 35 6. 5 39. 2 Arkansas 35 6. 5 39. 2 Tennessee 35 6. 5 39. 2 Hawaii 35 6. 4 39. 2 North Dakota 35 6. 4 39. 2 Missouri 35 6. 25 39. 1 Georgia 35 6 38. 9 Kentucky 35 6 38. 9 Oklahoma 35 6 38. 9 Virginia 35 6 38. 9 Florida 35 5. 5 38. 6 Louisiana 35 8 38. 5 Mississippi 35 5 38. 3 South Carolina 35 5 38. 3 Utah 35 5 38. 3 *Michigan 35 4. 95 38. 2 Colorado 35 4. 63 38. 0 *Texas 35 0 35. 0 *Washington 35 0 35. 0 *Ohio 35 0 35. 0 Nevada 35 0 35. 0 South Dakota 3 35 North Carolina 2 6. 97 35 0 35. 0 Wyoming Iowa Pennsylvania Minnesota Illinois Alaska New Jersey Rhode Island Maine California Delaware West Virginia Indiana New Hampshire Vermont Massachusetts Maryland Oregon Wisconsin Nebraska Idaho New Mexico Connecticut New York Kansas Japan (2010 Rates) Arizona Combined Federal and State Rate (Adjusted)1 35 0 France 34. 43 14 35. 0 34. 4

Tax Foundation Interactive • Property Taxes on Owner-Occupied Housing State Median Real Estate Taxes Paid (2009) Rank New Jersey $6, 579 1 Connecticut $4, 738 2 New Hampshire $4, 636 3 New York $3, 755 4 Rhode Island $3, 618 5 U. S. Average $1, 917 -- • New Mexico among the lowest (0. 55%; $880, 42 nd) • Visit interactive. taxfoundation. org for data by county Source: U. S. Census Bureau; Tax Foundation. Property taxes paid by renters, businesses, and others are excluded. 15

Tax Foundation Interactive • State-to-State Migration Data • Visit interactive. taxfoundation. org for online tool 16

Tax Foundation Interactive • State Spending Calculator (TABOR) • Visit interactive. taxfoundation. org for the calculator 17

Specific Tax Policy Research Areas Sales Taxes • Broad Bases/Low Rates/Inputs • VAT/Fair. Tax/SSTP • Sales Tax Holidays • Grocery & Clothing Exemptions • Use Taxes • “Amazon” Taxes/Nexus Issues • Gross Receipts Taxes • Local Option Sales Taxes Excise Taxes • History & Purpose/ “Pigouvian” Taxation • Cigarette • Alcohol • Gasoline/Tolls/Charges/Car • Obesity/Soda/Sugar/Salt • Plastic Bags/Bottled Water Business Taxes • Incidence of Corporate Taxation • Corporate Form/Pass-Thru • Depreciation • “Loopholes” • Incentives: R&D, Job Creation, Investment, Film • Franchise Taxes • Inventory/Capital Stock Taxes • Severance Taxes • Amnesties • High Federal Rate Property & Wealth Taxes • Assessments & Limitations • Commercial vs. Residential • Personal Property/Transfer • TIFs and PILOTs • Estate/Inheritance/Gift Income Taxes • Structure/Justifications • Brackets/Progressivity • Credits/Deductions/Exclusions • Capital Gains • “Jock” Taxes/Nonresident Taxes • Local Income Taxes Miscellaneous • “Tourist” Taxes (Hotel, Meals, Car Rental) • Cell Phone/Telecom • Unemployment Insurance • User Fees/State Enterprises • Lotteries/Gambling • Redistribution Issues • Taxes vs. Fees • Taxpayer Protections • Constitutional Powers & Rights 18

New Mexico’s Tax System in a National Context NMTRI Annual Tax Policy Conference May 2011 Joseph Henchman Vice President of Legal & State Projects Tax Foundation henchman@taxfoundation. org www. Tax. Foundation. org 19