Senate panel advances tax bill with Social Security income exemption

SANTA FE — New Mexicans would save money on taxable purchases and Social Security retirement income would be exempted from taxation — at least to a certain amount — under a new tax package that advanced out of a Senate committee late Thursday.

The package includes two provisions sought by Gov. Michelle Lujan Grisham — the tax exemption for Social Security benefits and a reduction in the state’s gross receipts tax rate.

But the proposal, technically a combination of four different Senate bills, also includes safeguards such as a provision the sales tax reduction would go away if revenue levels dip by a significant amount over the next five years.

“There’s a lot of compromise in this bill,” said Senate Majority Leader Peter Wirth, D-Santa Fe, during the hearing of the Senate Tax, Business and Transportation Committee.

The panel voted 9-1 to approve the measure, after stripping out a provision that would have prohibited New Mexico cities and counties from enacting local tax hikes over the next five years.

That came after several local government groups and lobbyists representing cities and counties voiced strong opposition to the provision.

“We shouldn’t tie the hands of local governments,” said Senate Minority Whip Craig Brandt, R-Rio Rancho.

Tax changes have emerged as a hot topic at the Roundhouse during this year’s 30-day session, as New Mexico is wash in a revenue windfall driven levels by surging oil production and increased consumer activity.

A House-approved $8.5 billion budget plan leaves about $400 million available for tax code changes during this year’s session.

The plan approved Thursday would cost an estimated $278 million during the coming year, according to the state Taxation and Revenue Department. That means other tax breaks could also be approved in separate bills.

Stephanie Schardin Clarke, the state’s tax secretary, told lawmakers the tax package was unveiled Wednesday wold benefit both New Mexico residents who pay the gross tax receipts on most purchases and the state’s economy.

She also said it would help businesses, since the gross receipts tax is levied on both goods and services, unlike the sales taxes that many states utilize.

“This bill will help New Mexico business be able to better compete with out-of-state businesses,” Schardin Clarke said.

The tax package approved Wednesday could still face changes in the session’s final week, however, as some top House Democrats arguing that exempting Social Security benefits from taxation would primarily help wealthier state residents — not low-income retirees.

But the Governor Democratic said this week she was optimism both tax proposals would ultimately be approved by lawmakers.

“I’m very confident those are coming together in the way they need to,” Lujan Grisham told reporters.

Wirth said legislators have “heard loud and clearly” from their constituents in favor of exempting Social Security retirement income from taxation, but said he favors setting limits on who could qualify for the tax break.

Under the bill approved Thursday, single individuals making more than $100,000 per year would not qualify for the tax exemption on Social Security income. For married couples filing jointly, the income threshold would be set at $150,000 annually.

New Mexico’s personal income tax was not levied on Social Security benefits until the early 1990s, when a provision buried in a tax bill triggered the change.

Reinstating the exemption with the proposed income caps would cost the state an estimated $84 million in foregone revenue in the coming fiscal year, according to a legal analysis of the bill.

The tax legislation now advances to the Senate Finance Committee.