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Walt Rubel Commentary: End SS tax, then replace lost funds

1/26/2022

 
When former Gov. Bill Richardson ended the gross receipts tax on food in 2005, I thought it was a no-brainer. Food and water are the two things we can’t live without, so of course they shouldn’t be taxed.

But the experts at New Mexico Voices For Children; who understand the intricacies of our tax system much better than I do and know that when it comes to setting tax policy, everything's a brainer; disagreed. They predicted correctly that shifting the burden from food to other purchases would hurt the poor more than help them.
Now, they are raising the same red flags over legislation that would also appear to be a no-brainer - ending the state income tax on Social Security benefits.

“New Mexico is one of only a few states that taxes Social Security,” Gov. Michelle Lujan Grisham said during a press conference last week. “Ending this tax lifts one more burden from the shoulders of New Mexico seniors living on a fixed income.”

New Mexico is one of only 12 states that taxes Social Security benefits, and has the second-highest burden in the nation, costing the average Social Security recipient nearly $700 a year, according to the advocacy group Think New Mexico. They argue that taxing Social Security benefits is a form of double-taxation, since money was previously deducted from each recipient’s paycheck during the years when they were working.

I would also note that some of the money taken from our paychecks for Social Security was raided to pay for other government expenses. And so, I support the effort to get rid of the tax. But I can’t dismiss the concerns raised by NM Voices for Children.

They note that half of all seniors in the state - individuals making $25,000 or less and couples making $34,000 or less - pay no taxes on their Social Security income. If the tax were repealed, 87 percent of the savings would go to those earning $50,000 a year or more and 66 percent would go to those earning $75,000 or more.

They argue that expansion of the Low-Income Comprehensive Tax Rebate would be a much more effective way to help seniors in the state who are struggling. And, for those seniors who aren’t struggling, life in New Mexico is pretty good. That’s why our senior population grew by nearly 40 percent  in the last decade.

I still support the bill because, in my gut, taxing Social Security benefits just feels wrong. But the Legislature can’t stop there.

An analysis of bills introduced last year seeking to repeal the tax on Social Security benefits predicted that it would result in a loss of about $90 million a year to the state. That may not be a problem this year, with money flowing from high oil and gas prices and federal relief bills. But veteran lawmakers know these booms are always followed by a bust.

Any repeal of the Social Security tax should be accompanied by separate legislation to recover the lost funds. Think New Mexico has proposed an increase in the tobacco tax - always a convenient target. I would rather look toward repeal of the high-end tax breaks passed during the Richardson administration, which have not sparked the economic growth that was promised.

Senate Bill 108 is a simple repeal, making no attempt to recover the lost funds. It’s passage should be the first step in a much longer process toward a fairer tax system.



Walter Rubel can be reached at waltrubel@gmail.com
Hear the audio version.

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