1 New Mexico’s Tax System in a National Context NMTRI Annual Tax Policy Conference May 2011 Joseph Henchman Vice President of Legal & State Projects Tax Foundation

About the Tax Foundation 74 years of objective data and analysis –Founded in 1937 Independent researchers gathering data and Providing objective information to counsel government, business, and citizens on public finance –Federal, state, and local tax issues –Testimony, newspapers, radio, television, website, and mass distribution of our publications to policymakers and general public –Non-profit, non-partisan 501(c)(3) Advocate of a principled approach to tax policy, based on economic research 2

Principles of Sound Tax Policy Simplicity Administrative costs are a loss to society, and complicated taxation undermines voluntary compliance by creating incentives to shelter and disguise income. Transparency A good tax system requires informed taxpayers who understand how tax assessment, collection, and compliance work, with open hearings and fully explainable and replicable estimates. Neutrality The fewer economic decisions that are made for tax reasons, the better. The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products. Stability When tax laws are in constant flux, long-range financial planning is difficult. Lawmakers should avoid enacting temporary tax laws. 3

Tax Foundation Annual Studies Facts & Figures –Rates, collections data, and rankings for each state and each type of tax Plus state debt, average local sales taxes, lottery revenue New this year: cell phone taxes –First published in 1941 –15,000 print copies & 100,000 downloads each year –Buy on Amazon for $3; contact us for bulk pricing 4

Tax Foundation Annual Studies Tax Freedom Day –Estimate of how long Americans have to work into the year to pay their combined federal, state, and local tax bill Tax Freedom Day 2011: April 12 –102 days into the year; 27.7% of income; +3 days from ’10 –Recession reduction of tax revenues, extension of tax cuts, new payroll tax cut Two weeks earlier than latest ever in 2000 (May 2) Tax Freedom Day including federal deficit: May 23 –Each state has a Tax Freedom Day New Mexico: March 31 Earliest: Mississippi (March 26) Latest: Connecticut (May 2) 5

Tax Foundation Annual Studies Tax Freedom Day 6

Tax Foundation Annual Studies State-Local Tax Burdens –Percent of residents’ income paid in taxes Adjusts for tax burden exporting by states More relevant than collections divided by income (Alaska has highest tax collections but Alaskans have lowest tax burden) –Does not account for value of government services or regulatory benefits/costs or tax collection efficiency –U.S. Average (2009): 9.8% ($4,160) Highest: New Jersey: 12.2% ($6,751) Lowest: Alaska: 6.3% ($2,973) New Mexico: 8.4% ($2,997) – 41 st highest –Historical data for each state back to 1977 New Mexico rose sharply in the 1990s and then dropped 7

Tax Foundation Annual Studies State-Local Tax Burdens: New Mexico 8

Tax Foundation Annual Studies State Business Tax Climate Index –How states raise their taxes –Ranks the competitiveness of the 50 state tax systems and provides roadmap for improving –Overall rank and five subindex ranks Individual income tax, Corporate income tax, Property tax, Sales tax, and Unemployment Insurance tax; 112 variables –2011 Index (using July 1, 2010 snapshot): New York worst, South Dakota best New Jersey (48 th ) not worst for first time since 2006 New Mexico: 33 rd –CIT (31 st ), IIT (20 th ), Sales (45 th ), UI (16 th ), Property (1 st ) 9

Tax Foundation Annual Studies State Business Tax Climate Index 2011 –Utah: 9 th –Texas: 13 th –Colorado: 15 th –Oklahoma: 30 th –New Mexico: 33 rd CIT (31 st ), IIT (20 th ), Sales (45 th ), UI (16 th ), Property (1 st ) –Arizona: 34 th 10

Tax Foundation Regular Studies Sources of Revenue New Mexico: –IIT (15.7) –CIT (4.6%) –Sales (35.7%) –Property (14.5%) –Other (29.5%) 11 Source: Tax Foundation calculations based on data from Census Bureau state and local government finance data for fiscal year 2008.

Tax Foundation Regular Studies Tax Collections –State Individual Income Tax Collections New Mexico: $467 (40 th ) 12 StateCollections per capita (2009) Rank (2009) U.S.$805-- New York$1,8891 Connecticut$1,8162 Massachusetts$1,6143 Oregon$1,4294 Minnesota$1,3245

Tax Foundation Regular Studies Combined State & Average Local Sales Tax 13 StateRateRank Tennessee9.44%1 California9.08%2 Arizona9.01%3 Louisiana8.69%4 Washington8.61%5 Source: U.S. Census Bureau; Tax Foundation; Sales Tax Clearinghouse Select Cities: New York City8.875% Los Angeles9.75% Chicago9.75% NM: 5.125% state % average local = 7.11% combined (18 th ) NM’s GRT is one of the broadest sales taxes in the United States.

Tax Foundation Regular Studies State Corporate Rates in International Context 14 Source: OECD; Tax Foundation Data OECD Overall RankCountry/State Federal Rate 2010 Top State/Provincial Corporate Tax Rate Combined Federal and State Rate (Adjusted)1 Iowa Pennsylvania Minnesota Illinois Alaska New Jersey Rhode Island Maine California Delaware West Virginia Indiana New Hampshire Vermont Massachusetts Maryland Oregon Wisconsin Nebraska Idaho New Mexico Connecticut New York Kansas Japan (2010 Rates) OECD Overall RankCountry/StateFederal Rate 2010 Top State/Provincial Corporate Tax Rate Combined Federal and State Rate (Adjusted)1 Arizona North Carolina Montana United States Alabama Arkansas Tennessee Hawaii North Dakota Missouri Georgia Kentucky Oklahoma Virginia Florida Louisiana Mississippi South Carolina Utah *Michigan Colorado *Texas *Washington *Ohio Nevada South Dakota Wyoming France 

Tax Foundation Interactive Property Taxes on Owner-Occupied Housing New Mexico among the lowest (0.55%; $880, 42 nd ) Visit interactive.taxfoundation.org for data by county 15 StateMedian Real Estate Taxes Paid (2009) Rank New Jersey$6,5791 Connecticut$4,7382 New Hampshire$4,6363 New York$3,7554 Rhode Island$3,6185 U.S. Average$1,917-- Source: U.S. Census Bureau; Tax Foundation. Property taxes paid by renters, businesses, and others are excluded.

Tax Foundation Interactive State-to-State Migration Data Visit interactive.taxfoundation.org for online tool 16

Tax Foundation Interactive State Spending Calculator (TABOR) Visit interactive.taxfoundation.org for the calculator 17

18 Specific Tax Policy Research Areas Income Taxes Structure/Justifications Brackets/Progressivity Credits/Deductions/Exclusions Capital Gains “Jock” Taxes/Nonresident Taxes Local Income Taxes Miscellaneous “Tourist” Taxes (Hotel, Meals, Car Rental) Cell Phone/Telecom Unemployment Insurance User Fees/State Enterprises Lotteries/Gambling Redistribution Issues Taxes vs. Fees Taxpayer Protections Constitutional Powers & Rights Sales Taxes Broad Bases/Low Rates/InputsBroad Bases/Low Rates/Inputs VAT/FairTax/SSTPVAT/FairTax/SSTP Sales Tax HolidaysSales Tax Holidays Grocery & Clothing ExemptionsGrocery & Clothing Exemptions Use TaxesUse Taxes “Amazon” Taxes/Nexus Issues“Amazon” Taxes/Nexus Issues Gross Receipts TaxesGross Receipts Taxes Local Option Sales TaxesLocal Option Sales Taxes Excise Taxes History & Purpose/ “Pigouvian” TaxationHistory & Purpose/ “Pigouvian” Taxation CigaretteCigarette AlcoholAlcohol Gasoline/Tolls/Charges/CarGasoline/Tolls/Charges/Car Obesity/Soda/Sugar/SaltObesity/Soda/Sugar/Salt Plastic Bags/Bottled WaterPlastic Bags/Bottled Water Business Taxes Incidence of Corporate TaxationIncidence of Corporate Taxation Corporate Form/Pass-ThruCorporate Form/Pass-Thru DepreciationDepreciation “Loopholes”“Loopholes” Incentives: R&D, Job Creation, Investment, FilmIncentives: R&D, Job Creation, Investment, Film Franchise TaxesFranchise Taxes Inventory/Capital Stock TaxesInventory/Capital Stock Taxes Severance TaxesSeverance Taxes AmnestiesAmnesties High Federal RateHigh Federal Rate Property & Wealth Taxes Assessments & LimitationsAssessments & Limitations Commercial vs. ResidentialCommercial vs. Residential Personal Property/TransferPersonal Property/Transfer TIFs and PILOTsTIFs and PILOTs Estate/Inheritance/GiftEstate/Inheritance/Gift

19 New Mexico’s Tax System in a National Context NMTRI Annual Tax Policy Conference May 2011 Joseph Henchman Vice President of Legal & State Projects Tax Foundation