New Mexico Governor Uses Line-Item Veto to Remove Regressive Food Tax from State Budget

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A few weeks back, we wrote of the New Mexico legislature’s approval of $200 million in tax increases to help close the state’s $600 million budget gap.  While the plan included both progressive and regressive components, it was regressive overall.  Governor Richardson on Wednesday removed one of the most regressive components of the plan — a local sales tax on groceries — through the use of his line-item veto authority.

While the Governor’s veto does improve the state budget’s fairness overall, it also places New Mexico on less stable financial footing in the months ahead.  Furthermore, to make up for some of the revenue lost by repealing the tax on groceries, the Governor chose to eliminate a small low-income credit included in the legislature’s plan.  This development is very unfortunate, as the tax package still increases the rate of the state’s sales tax (known as the “Gross Receipts Tax” (GRT) in New Mexico) in a way that will result in substantially higher taxes for those families who would have benefited from the credit.

In a bit of good news, however, the Governor chose to leave intact the legislature’s repeal of the deduction for state income taxes.  This bizarre, circular deduction is now offered in only seven other states — Arizona, Georgia, Hawaii, Louisiana, Oklahoma, Rhode Island, and Vermont — and should be looked at by all of these states as a potential source of much-needed revenue.  The Georgia Budget and Policy Institute (GBPI) released a report earlier this month using ITEP data that explains why this tax break should be eliminated.

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