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The corporate income tax: a poor source of revenue


Corporate income taxation is a complex issue. It will be on the 2013 Legislature’s reform agenda as it should be. New Mexico’s corporate tax rate, as Winthrop Quigley accurately points out in his article, is too high. Then, things get complex. Single factor and a host of other issues come into play and Quigley seems to side with his left-wing friends at Voices for Children who of course can “put lost tax revenue to use elsewhere” as they’ve never met a tax cut they liked or a tax hike they didn’t like.

While reforming or even eliminating New Mexico’s corporate income tax would not be a “panacea” for the state’s economy (you don’t rank 49th in economic freedom based on one bad tax), the fact is that the corporate income tax is a poor source of revenue for New Mexico. For starters, it is too volatile: According to the LFC, it collected about $230 million worth of revenue in FY 2011. That was an 83.7 percent increase from the previous year. That kind of volatility makes budgeting susceptible to wide economic swings. It ratchets the budget up in good times only to leave painful cuts (or tax hikes elsewhere) in the bad times.

It also, of course, negatively impacts business location in New Mexico. The oldest principal of taxation is: “If you want more of something, tax it less, if you want less of something tax it more.” New Mexico is among the poorest states in the nation and also happens to have zero Fortune 500 companies headquartered within its borders. Perhaps it is time to try something new by making businesses WANT to come here?

If outright tax cuts are not in the offing, may I suggest restoring lost revenue by eliminating film subsidies and some of the “economic development” programs offered by the state (like JTIP and LEDA)?

From Paul Gessing

Rio Grande Foundation

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