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New Mexico’s Supply-Sider
An ex-Clintonista is talking tax cuts.


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Just a few days after taking office, New Mexico Governor Bill Richardson (D.) quickly made a mark for himself. However, it had nothing to do with his chatting for a few days with a North Korean UN diplomat regarding the ongoing crisis over that rogue state’s nuclear weapons program.

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The former UN ambassador and energy secretary for President Bill Clinton warrants attention for his supply-side tax-cut plan.

On January 8, and again later in the month during his state of the state address, Richardson called for substantial reductions in both personal income and capital-gains tax rates in New Mexico.

New Mexico currently offers a tax system quite hostile to economic growth. In particular, its top tax rate on both personal income and individual capital gains registers 8.2%. Only a handful of states have higher tax rates.

Indeed, taxes in New Mexico damage the state’s competitive position. I author an annual study called the “Small Business Survival Index,” which compares the states according to their respective policy climates for entrepreneurship. By looking at 20 different government-imposed or government-related costs, the 50 states and the District of Columbia are ranked. Income taxes obviously play a big part in the index, since income levies directly impact returns on living, working, investing, and building or expanding a business in a state.

In the latest index for 2002, New Mexico ranked a miserable 47th in the nation.

Richardson wants to change this. He declared: “We want to send a strong signal that New Mexico is open for business.” The two broad-based components of his economic growth package would do just that.

Over five years, Richardson would reduce the top personal income-tax rate from 8.2% to 5%. Also, over the same period, the capital-gains tax rate would drop by 50%, from 8.2% to 4.1%. In both cases, New Mexico would go from having one of the highest tax rates in the nation to coming in below the average rates for the states.

If implemented, Richardson’s plan would dramatically improve New Mexico’s competitive position, enhance its ability to attract labor and capital, and boost the state’s economy.

What makes this solid tax-relief effort even more impressive is its timing. Governors and state legislators across the nation face daunting budget deficits. Many are preparing to hit families and businesses with a range of tax increases after years of profligate government spending.

Just look at the massive tax increase proposed by California Governor Gray Davis (D.), featuring higher cigarette and sales taxes, and an increase in the state’s already burdensome top personal income and capital-gains tax rate (from 9.3% to 11%). Davis’s tax hikes would further worsen California’s already poor competitive position among the states. (California ranked a lowly 46th in the 2002 “Small Business Survival Index.”)

But Richardson is focused in a completely different and far more productive direction. That is, he is implementing policies that will, as he put it, “put New Mexico on the road to prosperity.” That’s a sound economic and fiscal strategy. After all, tax cuts help the economy grow faster, which in turn eases budget pressures.

Can a Clinton Democrat actually show the way in the states when it comes to supply-side economics? So far, Richardson most certainly is doing so. Let’s hope other governors — both Republicans and Democrats — follow his lead.

— Raymond J. Keating serves as chief economist for the Small Business Survival Committee, and is a weekly columnist for Newsday.



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