Food tax poised to be divisive issue in session
A sweeping proposal to reform New Mexico’s tax code has something for everyone to hate, including a plan to reinstate a tax on groceries.
But state Rep. Jason Harper, R-Rio Rancho, sees the bill as a policy change that can help people. He says taxing a broader range of goods — such as food — would allow legislators to lower taxes overall.
Opponents of a food tax are already rallying against Harper’s proposal. They say it would hit low-income New Mexicans particularly hard.
State lawmakers repealed the gross receipts tax on food and prescription drugs in 2004. Legislators voted to reinstate the tax on groceries six years later as New Mexico plunged into recession. Then-Gov. Bill Richardson, a Democrat, vetoed the bill, and his successor, Republican Gov. Susana Martinez, has said she will veto any new taxes. Even so, certain lawmakers have advocated for reviving the food tax, especially with the state’s reserves running low.
With New Mexico again in the middle of a budget crisis, a bill reinstating a tax on food is likely to be just one of several proposals for boosting the state’s finances when legislators begin their 60-day session Jan. 17.
But the food tax is likely to stir fierce opposition.
Critics of the idea maintain that a food tax is regressive, falling disproportionately on the poor, who spend a relatively large share of their income on necessities such as groceries.
New Mexicans enrolled in the Supplemental Nutrition Assistance Program would not have to pay the tax. But the public policy organization Think New Mexico argues that many of the state’s poorest residents have not enrolled in food aid and will be hit by the tax if it’s reinstated.
“Food is a necessity,” said Fred Nathan, Think New Mexico’s executive director. Taxing groceries, he argued, “ought to be the last option.”
Harper views the proposal not as a standalone short-term revenue stream but as part of a broader reform of the state’s tax code that would lower overall gross receipts tax rates.
Harper said he will introduce legislation reinstating the food tax as part of a bigger bill that would restructure the state’s gross receipts tax and even rename it as a sales tax.
His bill, still being drafted, would slash overall rates, change how local governments impose taxes and seek to require major internet retailers to pay taxes for goods sold to New Mexico residents.
Harper says it would be the biggest update to New Mexico’s tax policy since the late 1960s, modernizing a system he describes as overly complex.
“How on earth can we expect to attract business here or expect a business here to grow that can’t afford a team of accountants?” he said Friday during a meeting of the Legislative Revenue Stabilization and Tax Policy Committee.
Referring to the state’s stubbornly high unemployment and poverty rates, Harper said the overhaul is “going to help us climb out of this death spiral.”
He concedes his proposal contains policies opposed by both Republicans and Democrats.
“If I was doing the Republican tax plan, it would look quite different,” he said.
But he is counting on bipartisan support because of broad discontent with the state’s tax code and the budget crisis.
Reinstating the food tax would revive an idea from a very different era.
Legislators approved the tax during the Great Depression as what was supposed to be a temporary emergency measure. It stuck around for decades, even as other states eliminated taxes on groceries. As of August, 13 states still taxed groceries, according to the Pew Charitable Trusts.
Supporters of reinstating the food tax say the idea is not as onerous as it sounds. Eliminating the tax on groceries only prompted local governments to raise taxes to make up for the lost revenue, says Bill Fulginiti, executive director of the New Mexico Municipal League.
In New Mexico, local governments sought to make up for the lost revenue by raising the gross receipts tax. For example, in the city of Santa Fe, the rate has grown to 8.3125 percent this year from 6.4375 percent in 2000. Rates have risen across the county, too, from 5.875 percent in 2000 to 7 percent this year.
“We didn’t help the poor,” Fulginiti said. Instead, he said, taxes were merely shifted from the state to local governments.
Harper says his proposal would widen the tax base, thereby allowing the state to reduce gross receipts taxes.
Some Democrats say they will back Harper’s bill if it includes tax rebates that offset the cost of a food tax on low-income New Mexicans.
Rep. Bill McCamley, D-Mesilla Park, said that lowering gross receipts tax rates would be fairer for people with low incomes and make New Mexico more attractive to businesses.
Others say that is wishful thinking.
Nathan described the proposal as “completely inadequate.”
“The rebate isn’t going to cover many low-income New Mexicans who will feel the brunt of this tax,” he said.
His organization estimates the average eligible family’s rebate would amount to $10 to $15 a year.
Nathan accused lawmakers of attempting to duck accountability by rolling the proposal into a bigger tax reform bill that may also include more popular policies.
And some Democrats questioned whether the bill would really leave more money in the pockets of New Mexicans.
Rep. Antonio “Moe” Maestas, D-Albuquerque, argued that improving the economy is as closely tied to the minimum wage as taxes. He and other Democrats have tried and failed for years to raise the statewide minimum wage of $7.50 an hour.
And Sen. Carlos Cisneros, D-Questa, questioned whether a food tax and other measures suggested by Harper would help fill the hole in the state’s budget.
“We buy into this, we still have the dilemma that we have,” Cisneros said.
The Santa Fe New Mexican is a sister-paper of The Taos News. Contact Andrew Oxford at 505-986-3093 or aoxford@sfnewmexican.com. Follow him on Twitter @andrewboxford.
