Paul Gessing is president of New Mexico’s Rio Grande Foundation, which promotes limited government, economic freedom and individual responsibility. He warns lawmakers that eliminating tax credits may not help heal the state’s budget woes.
Eliminating tax credits won’t eliminate deficit
With a $400 million budget deficit facing lawmakers when they return to Santa Fe, the 100-plus tax credits and deductions the state offers have justifiably come under greater scrutiny. While we applaud the increased concern over New Mexico’s fiscal condition, there are a few important points to keep in mind.
First and foremost, while the Tax and Revenue department lists the film subsidy as a “tax credit,” this is a misnomer that can lead to poor policy decisions. The full spreadsheet of credits, exemptions, and deductions is available on our website at:
The film “credit” provides a 25 percent rebate on each dollar the film industry spends in the state. In FY 2009, this amounted to a $76 million outlay while in FY 2010, the total expenditure was approximately $66 million. This wealth transfer is inherently inefficient and should be considered for elimination.
The rest of the tax credits and deductions involve people or businesses not paying taxes on activities that would otherwise have been taxed. From both an economic and moral perspective, the film subsidy is far different than a credit or deduction. Transferring money from one taxpayer to another is far different than simply allowing a taxpayer to hold onto his or her own money.
The other thing to keep in mind is that eliminating tax credits and deductions is inherently a tax increase. Also, tax credits and exemptions are often used to alleviate inherent inefficiencies found in New Mexico’s tax system.
Approximately half the exemptions and deductions (including some of the largest ones) apply to New Mexico’s mineral and other extraction industries. Any efforts to raise revenue by taxing those industries will make our state less attractive to those who do business in the state and employ thousands of New Mexicans and pay millions and even billions of dollars in taxes to the state annually.