Income Tax Adjustments Benefit Middle-Income Earners
The state government of New Mexico is considering adjustments to personal income tax rates and brackets that would result in an overall annual loss of approximately $105 million. However, these adjustments would also lead to increased taxes on investment income. According to the state Taxation and Revenue Department, all income levels would see a decrease, with middle-income earners benefiting the most in terms of dollar savings.
For instance, a couple with a taxable income of $8,000 would experience a $16, or 12%, decrease in their annual income tax, resulting in a total of $136. On the other hand, a wealthier couple with an annual taxable income of $400,000 would save about $553, or 2.8%, on their annual taxes of $20,042.
Tax Credits and Deductions for Healthcare and Childcare
The proposed bill, introduced by Democratic state Rep. Derrick Lente, includes not only the income tax adjustments but also tax credits and deductions aimed at addressing various issues. These include efforts to strengthen the medical workforce in remote rural areas, alleviate fiscal burdens on child care and preschool providers, and improve access to healthcare and childcare.
Lente stated that the bill aims to “support clean energy and provide assistance to those in need within our communities.”
Incentives for Renewable Energy and Construction
Another highlight of the bill is the incentivization of large-scale energy storage projects. By reducing local government taxes on these facilities through the use of industrial revenue bonds, the bill aims to make renewable wind and solar energy production more practical and efficient.
Additionally, the bill proposes a flat 5.9% rate for the corporate income tax for companies earning less than $500,000 in annual income. This change aims to streamline tax regulations for businesses and foster economic growth.
Tax Relief for Wildfire Victims and Cap on Capital Gains Tax Exemptions
New Mexico residents who have lost their homes due to recent wildfires would be eligible for a new income tax credit under the proposed bill. This measure seeks to provide financial relief and support to those affected by natural disasters.
The bill also includes a reduction in the cap on capital gains tax exemptions to $2,500. This change is intended to limit a tax break that primarily benefits the state’s highest earners.
Debate and Alternative Proposals
House Republicans, led by state Rep. Jim Townsend, suggested more aggressive tax cuts in light of an estimated $3.5 billion surplus for the coming fiscal year. However, their proposed amendment, which suggested a flat 1% tax on personal income, was unsuccessful.
Currently, personal income tax rates in New Mexico range from 1.7% on taxable income under $4,000 for individuals to 5.9% on annual income over $157,000.