In recent years, New Mexico has witnessed an expansion of its tax expenditures, with the state returning tax dollars or forgoing tax collections. Delving into the data provided by the Legislative Finance Committee (LFC), we uncover the largest expenditures, shedding light on where these dollars are directed and their impact on the state’s fiscal landscape.
Photo from: Kiplinger
Income Tax Rebates Take the Lead
The single most significant expenditure in New Mexico’s tax landscape is payouts for income tax rebates. The LFC reports that over 951,000 New Mexicans received checks for 2021 rebates, constituting a substantial expenditure surpassing half a billion dollars.
Following closely, the second-largest expenditure revolves around gross receipt tax (GRT) deductions for food sales. As a key aspect of the state’s sales tax, these deductions, averaging over $300 million annually in the last five years, provide relief to retail food stores, with legislative changes in 2004 and 2021 enhancing their scope.
The third major expense category involves deductions on prescription drugs, medical oxygen, and medical cannabis. The LFC outlines an expenditure exceeding $155 million annually, reflecting the state’s commitment to providing financial relief in the realm of healthcare.
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Balancing Fiscal Incentives
Beyond the top three expenditures, New Mexico allocates millions to various tax credits. Notable among them are tax credits for film and television productions, drawing attention for their substantial cost, exceeding $100 million in 2023. However, these credits face scrutiny for their perceived low return on investment.
As New Mexico navigates budget discussions, the spotlight on tax expenditures reveals a diverse landscape of financial incentives. The state grapples with decisions about prioritizing sectors like healthcare, retail, and entertainment, weighing the impact of each expenditure on its economic and social objectives.
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