American Legislative Exchange Council executive vice president of policy Jonathan Williams, the organization’s chief economist, said New Mexico is sorely in need of a comeback to compete economically with neighboring states.
Williams spoke at the New Mexico Business Coalition’s BASH (Business and Social Hour) in Albuquerque on Jan. 19 at Revel Entertainment.
He is the co-author of “Rich States, Poor States,” which provides an annual evaluation of each state and key areas of policy in that state to better understand its economic trajectory.
New Mexico’s economic performance over the last decade ranked 42nd out of 50 states in “Rich States Poor States,” he told New Mexico Sun.
“[This] is not a big surprise to any New Mexico natives that have lived through this last period of time and Gov. Michelle Lujan Grisham and her tax increase proposals and ideas for bigger government, even outlined more recently in her State of the State Address,” Williams said.
“But it’s a longer-term trend of population loss and loss of GDP growth and loss of job growth in New Mexico relative to the rest of the country now for a decade, in our measurement," he added. "And you combine that with how we rank New Mexico’s economic outlook, which is a forecast that we put together every year in our ‘Rich States, Poor States’ report, that comes in at a pretty poor 38th ranking as well.”
In his keynote address, he reviewed the errors and poor choices that led New Mexico to this fiscal folly. He also offered advice on how New Mexico can make itself more competitive while trying to “turn around this ugly picture of losses of outmigration and the poor job growth and poor economic growth.”
The annual report evaluates 15 equally weighted factors such as taxes on income, sales and property, debt service as a share of tax revenue, recently legislated tax increases and size of government workforce, the tort system regulation and labor policy, as well if any meaningful spending limits are in place, Williams said.
“Of those 15, several really stick out,” he said. “One I alluded to with gross receipts tax or the sales tax burden, only one other state in America having a higher sales and gross receipts tax burden.”
That state is Hawaii. The sales tax burden is calculated by taking tax revenues from state and local sales taxes per $1,000 of personal income. Sales taxes taken into consideration include the general sales tax and specific sales taxes using U.S. Census Bureau data, for which the most recent year available is 2019.
“Where appropriate, gross receipts or business franchise taxes, counted as sales taxes in the census data, are subtracted from a state’s total sales taxes in order to avoid double-counting tax burden in a state,” according to the study. “These data were released in October 2021.”
Four states, Delaware, Montana, New Hampshire and Oregon, are at $0. New Mexico is at $46.74, only surpassed by Hawaii at $52.91.
Williams said that is “a huge drag” on New Mexico’s economy.
The Land of Enchantment has a less-than-enchanting pattern of raising taxes, he noted. That’s why New Mexico was ranked 41st for legislative tax changes.
“Public employees as a percentage of population, that includes state and local employees such as teachers,” Williams said. “There’s only a handful of states with a larger government workforce relative to the shared population. Obviously, not being a right-to-work state is a huge factor.”
States that have become right-to-work states in the last decade have flourished, as they realized not instituting it can be a serious economic development inhibitor, Williams argues.
“For a lot of companies looking to invest across multiple states, it’s really a yes or no factor for whether states consider it or not,” he said. “They need to be a right-to-work state to be competitive. And then the tax expenditure limit category, that is, does the state law or state constitution have any protection for taxpayers on how quickly government tax burdens or spending grows? And in New Mexico, the answer is no.”
He noted how Colorado installed a Taxpayer’s Bill of Rights in the Colorado Constitution 30 years ago, which has been a major reason the state has been able to keep tax burdens relatively low over that period of time despite being a fast-growth state.
“These are not partisan solutions. These are good economic solutions,” Williams said. “I don’t care if legislators are Republican, Democrat, independent, libertarian or vegetarian. As I said during my remarks, I hope that they care about good economics and what works and what doesn’t work. The track record of many of these reforms that we’ve seen in other states show that either Democratic voters or in many cases Democrat policymakers have supported some of these ideas.”
North Carolina Gov. Roy Cooper, a Democrat, signed a tax cut plan in 2021 that will gradually completely eliminate their business income tax in North Carolina, making it the first state to do so.
“Colorado Gov. Jared Polis said he would favor eliminating the personal income tax in Colorado altogether,” Williams said. “And then you have a poll done of the Taxpayer’s Bill of Rights, for instance, at its 30th anniversary back in November, showing that over 70% of Colorado voters support the Taxpayer's Bill of Rights and over 60% of Democrats support that type of limit on the growth of government spending and taxing."
He said this should resonate with voters in this state.
“Bottom line, I think is, New Mexico is not competitive nationally when it comes to economic factors that we look at in competitiveness,” he said. “More important, and probably people feel this more acutely, is within the region. New Mexico is a huge outlier when it comes to economic competitiveness, with the Southwest region being one of the very most competitive regions in America.”
Utah has ranked at the top of the “Rich States, Poor States” listings in all 15 annual editions. Arizona went from No. 13 to No. 3 in the last year, and currently has the nation’s lowest income tax of any state that has an income tax as well as a 2.5 percent flat tax, Williams noted.
Texas and Nevada have no personal income tax whatsoever. Colorado has a low flat rate tax, the Taxpayer Bill of Rights, and Oklahoma has become a top 10 state in “Rich States, Poor States” with a governor looking to become even more competitive with further tax reductions, possibly a flat tax on the horizon, he said.
Pension liabilities are a concern as well, Williams said.
“Pension liabilities are large and growing and we find that is certainly something that adds to the state indebtedness and something that we study every year at ALEC,” he said. “We give an estimate of the unfunded liabilities in state pension plans. We have another report that gives the estimate of unfunded liabilities in health care plans, which is a huge deal there for the state workers.
“But then you do absolutely have to analyze the balance sheet to say, ‘Where are the unfunded liabilities?’” he said. “Because what those are future tax increases that will be placed in many cases on the business community and on employers. And so having high unfunded liabilities is a huge detriment in future economic growth in New Mexico.”
Is New Mexico overly dependent on federal dollars?
“I would argue every state is, there’s no doubt,” Williams said. “With Medicaid programs and the extra incentive that the Biden administration is given to load up on Medicaid rolls and so many other programs, I think that’s the case. Obviously, you also have the issue of federal lands and the kind of control that comes with them and loss of economic development.”
He said the Biden administration has restricted new sales and leases of oil and gas exploration on federal lands almost from its first day in power.
Williams said change can happen in New Mexico, no matter how improbable it seems. That’s what he hears from lawmakers across the country during his travels.
“My home state of Michigan being one, that we were really on the ropes there for a good decade, in a single-state recession, as we called it at the time,” he said. “But having the right leaders come into power at the right time and with the right ideas, I think has proven now and decades later, after Michigan became a right-to-work state and cut taxes, that it’s possible to turn around Michigan and states that really had a tough go of it. And if you can turn around a state like Michigan, there’s hope for pretty much any state that feels that they’re not as competitive as they like to be.”
His advice for New Mexico is to reduce tax rates, especially income taxes. The gross receipts tax needs to be reevaluated, because it is a deeply anti-competitive policy.
The New Mexico Business Coalition (NMBC) is a statewide nonpartisan, pro-business organization and a state affiliate of the National Association of Manufacturing. NMBC focuses on improving the business environment for companies and the quality of life for all New Mexicans. For more information, nmbizcoalition.org.
Sponsors for the event included Revel Entertainment, New Mexico Restaurant Association, New Mexico Stockman Magazine and Tomasita’s.