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The Tax System Problem

The Journal had an article yesterday (subscription) in the Business Outlook on tax pyramiding in which the New Mexico Tax Research Institute came to some very alarming conclusions.

State and local government collected about $2.3 billion in gross receipts tax in the last four quarters, about $1.17 billion of which was collected as a result of transactions between businesses, the study found. Tax credits and other relief returned about $426 million of that to businesses, leaving $748 million in taxes that are paid on goods and services that businesses buy.

First problem that jumps off the page is that a little over half of all gross receipts tax is based on pyramiding taxes (i.e. tax upon tax). Second problem is in the last line of that quotation. That last line is deceiving. As the owner of two small businesses I can tell you I won’t see those “tax credits and relief” come back into my business. Instead, the legislature and the Governor in their infinite wisdom, makes me pay taxes on transactions between my service business and other service businesses and turns around and gives tax credits and relief to other companies.

Oh yeah, that’s fair.

Granted, there are business collations pushing these gems of legislation under the misconception that a piecemeal approach to tax cuts is the way towards progress. It’s not. It results in the abomination we currently call a tax system. But hey, it gets worse. The articles ends with this gem of a recommendation:

Persuading the state to forego $748 million in revenue will be a hard sale, he said.

Instead, if legislators think pyramiding is a problem, they might look at “pockets of pain” and provide credits to some industries, such as mining and utilities, that currently have little pyramiding relief, Eads said.

Brilliant logic… let’s add to the problem by making some more special allowances.