By Paul J. Gessing

With $3.6 billion at its disposal the New Mexico Legislature had the chance of the century (and possibly the last century) to enact sweeping reforms of the State's tax structure. The idea, seemingly as professed publicly by those from across the political spectrum is to diversify the State economy to be less reliant on the vagaries of oil and gas prices.

Unfortunately, even with a positively mind-blowing 42 percent single-year budget surplus on top of robust spending growth in recent years and a large state and local government structure to begin with, the New Mexico Legislature abjectly failed to address our State's problematic tax structure.

That means that New Mexico's job-killing taxation of business service inputs will continue. And, while the gross receipts rate reduction is welcome, it is simply not a game-changer. In fact, GRT rates will remain higher in Albuquerque and most other cities than they were when Bill Richardson left office at the end of 2010. And, due to a last-second decision to add even more generous film subsidies to the bill, the GRT reduction will be phased in over four years and contingent on continued record-breaking tax revenues.

As passed, the bill (HB 547) is mediocre. But the original House version of the bill included major personal income tax hikes with a new top rate of 6.9 percent. When Richardson left office and throughout the Martinez era, New Mexico's top income tax rate was 4.9 percent.

This provision was amended out, but the inclusion of an income tax increase in the first place reflects the Democrat-controlled Legislature's failure to grasp the opportunity at hand. As the final bill was crafted provisions to raise the capital gains and corporate income taxes were retained in the legislation. So-called "sin" taxes on alcohol and cigars were included as well.

If the goal is to diversify the New Mexico economy, you can't do much worse than to raise capital gains and corporate income taxes. Perhaps the only thing worse is raising these taxes while the Legislature boosts spending by 14 percent and has a $3.6 billion surplus at its disposal. It certainly sends a message to prospective businesses considering coming to our state that New Mexico lawmakers don't have a firm grasp on basic economics.

After all, if you are going to raise taxes on businesses with a $3.6 billion surplus, what will happen if/when oil and gas revenues drop? This is the reason for all of the talk of economic diversification after all, right?

While the tax hikes may be the worst part of the bill, numerous other provisions of the legislation are deeply problematic. Subsidies for electric vehicles and charging stations are included. If these technologies are truly the wave of the future, why spend tax dollars on them? The same can be said for subsidies for energy storage systems. Some films could attain reimbursement of 40 percent of their taxable expenses.

Overall, New Mexico politicians are on the verge of squandering its unique chance to use a $3.6 billion surplus to diversify and improve its economy. Sadly, the Legislature has failed. Gov. Lujan Grisham will have a chance to wield her line-item veto pen. Hopefully, she too sees the problems inherent in enacting economically harmful tax hikes while also attempting to diversify the economy.

Paul Gessing is president of New Mexico's Rio Grande Foundation. The Rio Grande Foundation is an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.