The New Mexico House of Representatives has approved a bill aimed at overhauling the state’s tax system, with a focus on reducing personal income taxes and revising investment tax breaks. The bill, proposed by Democratic state Rep. Derrick Lente of Sandia Pueblo, passed with a vote of 48-21 and is now set for consideration in the Senate.
Under the proposed changes, personal income taxes would see a reduction across all income brackets, resulting in savings for taxpayers. The adjustments would lead to an annual revenue loss of approximately $105 million for the state government. Notably, the bill seeks to collect more taxes on investment income while providing relief for middle-income earners.
According to an analysis by the state Taxation and Revenue Department, all income tax payers would experience a decrease, with middle-income earners seeing the greatest savings. For example, a couple with a taxable income of $8,000 would see a $16 decrease in annual income tax, representing a 12% reduction. Meanwhile, wealthier couples with an annual taxable income of $400,000 could save approximately $553 annually, amounting to a 2.8% reduction in taxes.
In addition to the changes in personal income taxes, the bill includes provisions aimed at supporting various sectors of the economy. These provisions encompass tax credits and deductions to bolster the medical workforce in rural areas, alleviate financial burdens on child care and preschool providers, and incentivize the construction of large-scale energy storage projects to enhance renewable energy production.
Furthermore, the bill addresses the issue of capital gains tax exemptions, with a reduction in the cap to $2,500. This move aims to limit a tax break that primarily benefits high-income earners. Additionally, businesses would see changes, including a proposed flat 5.9% rate for corporate income tax for companies with less than $500,000 in annual income.
The bill also extends support to residents affected by recent wildfires, offering new income tax credits for those whose homes were destroyed.
While House Republicans, led by state Rep. Jim Townsend of Artesia, advocated for more aggressive tax cuts in light of a significant general fund surplus, their proposals were not adopted. Townsend’s suggestion of a flat 1% tax on personal income failed to garner sufficient support.
Currently, New Mexico’s personal income tax rates range from 1.7% on taxable income under $4,000 for individuals to 5.9% on annual income over $157,000.
The passage of this bill represents a significant step in the state’s efforts to reform its tax system, with potential implications for taxpayers across various income levels and sectors of the economy.