Rebecca Dow, a house representative from New Mexico, said that federal budget changes will impact local tax policy through new deduction limits, tax exemptions, and inflation adjustments. The statement was made on X.
"Enhanced standard deduction: 1 yr of inflation adjust. for the standard deduction, beginning 2026," said Rebecca L. Dow, New Mexico State Representative for 38th District (R). "Itemizers could only claim a max of $10k of their state & local tax liability as a deduction. No tax on tips. Deduction for auto loan interest."
The 2025 federal budget reconciliation proposal could significantly affect New Mexico’s tax strategy by limiting options to raise revenue. According to the Center on Budget and Policy Priorities, provisions in the bill would reduce federal funding for Medicaid and restrict the state’s ability to increase taxes or impose new provider fees. This could force New Mexico to modify its tax code or cut services to maintain budget balance. The New Mexico Legislative Finance Committee noted that such federal constraints may strain state fiscal planning.
New Mexico stands to see minimal direct impact from changes to the State and Local Tax (SALT) cap and federal standard deduction. According to the National Taxpayers Union, only about 0.1% of SALT cap relief would benefit New Mexico residents due to its relatively low state and local tax burden. However, higher federal standard deductions could reduce itemized deductions at the state level, slightly lowering income tax collections. The cumulative fiscal effect on the state is projected to be modest.
Taxation of tips, overtime, and auto loan interest varies widely across the U.S., with few states offering exemptions. According to Kiplinger, some states like Nebraska and Kentucky are considering or have enacted tax relief on overtime income and tips, while most—including New Mexico—continue to tax them as regular income. No state currently exempts auto loan interest from income tax, though federal proposals may influence future state decisions. These differences reflect state-level responses to wage inflation and consumer debt.
Rebecca Dow is a Republican legislator currently serving in the New Mexico House of Representatives for District 38. As reported by the New Mexico Legislature’s official site, Dow previously served from 2016 to 2022 and returned in 2025. She is a former educator and business owner who advocates for tax reform, limited government, and expanding economic opportunities, particularly in rural communities. Her platform includes opposition to tax increases and strong support for small businesses.
