Dems propose eliminating personal income taxes for certain working families

Yahoo

15-03-2025

Mar. 14—SANTA FE — Democrats are proposing eliminating all personal income taxes for working-class households making $70,000 or less a year, a cost that would be offset by a new oil surtax.
The earned income tax credit proposal unveiled this week passed the House Taxation and Revenue Committee 7-5 along party lines Friday. Republicans dubbed it another effort to harm the oil and gas industry.
The proposal comes as New Mexico has seen a booming budget and surplus. But it is uncertain if actions by the Trump administration will result in the loss of federal dollars the state is heavily reliant upon.
The tax package also takes into consideration the increasing likelihood of a recession and high inflation rates, according to bill sponsors.
"We don't know how unaffordable life will become over the next few years," said House Speaker Javier Martínez, D-Albuquerque, a sponsor of the tax package.
House Bill 14 would expand the state's working families tax credit currently available for low- and middle-income households. An additional 100,000 New Mexicans would get the tax break if the Legislature also approves a new 0.28% severance and sale surtax on oil when prices per barrel are at or above $55, which they are today.
Tax credits would be available for workers making up to $82,400 annually, though the credits may not fully offset personal income taxes in all situations.
The state would lose out in fiscal year 2026 on about $72 million from the loss of personal income tax revenue, but that would be compensated with the roughly $130 million generated from the new oil surtax.
"Revenues raised by these provisions are used to help New Mexicans in the middle and working classes," said bill sponsor Rep. Derrick Lente, D-Sandia Pueblo.
The tax package would also slightly adjust emergency school tax rates — money that goes to the state's general fund. Gas tax rates would decrease from 4% to 3.9%, resulting in an $11.4 million loss of revenue. Oil tax rates would remain at 3.15%.
Current tax incentives offered for wells producing small amounts, known as stripper wells, would remain in place.
"New Mexico has an absolute right to negotiate what is equal and fair for our citizens and provide those opportunities," Lente said.
'A much more modest approach'
The tax package is a combination of 16 previously tabled bills, Lente explained. He described it as a calculated approach that doesn't go all-out on spending.
"We've taken a much more modest approach," he said.
In a round-about way, the package eliminates personal income taxes for many working families. That's because it would offer tax credits in increasing amounts depending on how much taxpayers make, their marital status and if they have children.
It would also make New Mexico's working-class tax incentives more independent of the federal government.
Eligibility for the state's working families tax credit is currently based on the federal earned income tax credit, but HB14 would allow the New Mexico Taxation and Revenue Department to directly adjust income thresholds based on inflation.
"The bill decouples New Mexico from the federal earned income tax credit, allowing us to tailor this program for the benefit of New Mexicans as we study the impacts of this program over the next several years," Lente said.
Taxing NM's big revenue source
Rep. Rod Montoya, R-Farmington, said he's always loved the working-class income tax credit. But "this year of all years does not justify raising taxes on the industry that pays for approximately half of our budget," he said.
Surging oil production in recent years has resulted in hundreds of millions of dollars more for the state, accounting for upward of a third of the currently proposed $10.8 billion budget.
But decreasing oil prices have raised red flags for Republicans, prompting Rep. Jonathan Allen Henry, R-Artesia, to call the state of the industry unstable.
The price of WTI (West Texas Intermediate) crude oil was $67 a barrel Friday, a drop of approximately $9 since the start of the session.
Henry said it's a sign to be cautious.
Oil and gas producers speaking against the bill during public comment, including the Independent Petroleum Association of New Mexico and the New Mexico Oil and Gas Association, voiced similar sentiments.
Bridget Dixson, president and CEO of the Santa Fe Chamber of Commerce, added that the tax package only worsens the state's dependence on the volatile oil and gas industry, which Lente rebutted.
"Our oil and gas industry is dependent on global dynamics, and not necessarily a small increase in this equalization," he said. "So when we talk about tariffs being waged and a federal administration waging certain wars with certain individuals, this is far more of a reach than a modest attempt to equalize New Mexico's tax rates."