News and Views, No. 00-14 April 14, 2000
WHEN THE GOING GETS TOUGH . . .
By Matthew Mitchell
In 1913, the United States finally mustered enough misguided gumption to pass the 16th Amendment to the Constitution, legalizing a federal income tax. As Jude Wanniski noted, the timing "does not seem entirely coincidental." It was just a year earlier that New Mexico and Arizona entered the union, closing the frontier, and with it, any escape from onerous federal taxation. Nearly a century later the old frontier is still a haven for tax relief. Well, most of it anyway.
If we narrow our focus on what was once the New Mexico Territory, we find an interesting story. Arizona and New Mexico have in common a past political affiliation, a shared birth-year, similar climates, geographic size, natural resources and comparable demographics. Nevertheless, the states are on very different economic paths of growth.
The sun that bathes the Arizona desert has brought with it 114.5 percent growth in personal income per capita during the 1990s. This bests the national average of 113.7 percent growth as well as New Mexico's 113.5 percent rate. New Mexico ranks 48th in the Union for per capita earnings. Arizona's rank of 35th, on the other hand, is nothing to brag about. It lies somewhere between New Mexico's dismal performance and the remarkable prosperity of the region as a whole (most of the others in the Southwest are in the top 20, and a 120 percent growth in per capita income is not uncommon).
So, what is it that makes New Mexico, a beautiful and diverse state--similar in so many ways to Arizona--New Mexico yet keeps her from achieving the success of her neighbors? One explanation is taxes.
New Mexicans endure the most oppressive income tax rates in the region, with the average resident forking over 12 percent of his or her earnings to the state and local tax collectors. This is higher than the national average for state and local taxation of 11 percent and well above the regional average of 10.7 percent. What is particularly interesting about these statistics is the way that they are calculated. We would expect states like New Mexico to have lower "average" tax burdens than the others since their residents do not, on average, earn as much money as citizens of other states, and are therefore not shoved into higher tax brackets. So when we see that a relatively poor state like New Mexico has the 7th highest "average" state and local tax rate in the country, we should be particularly alarmed.
How does Arizona stand in the tax comparison? After a decade of tax cutting, the rate on the average taxpayer is 10.8 percent. This makes the state the 33rd highest taxed in the country. Like her average earnings, the rate lies somewhere between New Mexico's procrustean rates and the regionÕs low 10.68 percent average--a number brought down by states like Nevada and Colorado whose average citizen pays less than 10 percent.
Perhaps we have yet one more not entirely coincidental statistic: People have poured into Arizona--as they have nearly everywhere in the Southwest. You can chalk it up to the dry heat and ubiquitous sun, but New Mexico, with its high mountains and lush forests, offers this and more. Nevertheless, there seems to be some reluctance to relocate to the Land of Enchantment. Throughout the last decade, Arizona has seen nearly 600,000 people move in from other states.
During the same period, New Mexico had just 40,000 trickle in. Arizona saw more than that just last year, a year when New Mexico actually lost residents to other states. The Southwest as a whole is on the frontier of tax cutting and the people seem to be voting with their feet, stampeding to the tax haven. When the dust settles, policy makers in New Mexico might do well to pay attention to the "election" results.
(ED NOTE: THIS ARTICLE IS REPRINTED WITH PERMISSION FROM THE GOLDWATER INSTITUTE OF PHOENIX AZ. MATTHEW MITCHELL IS A RESIDENT OF ALBUQUERQUE, NM AND WE ARE DELIGHTED THAT HE HAS CONTRIBUTED THIS ARTICLE FOR THE NEW MEXICO INDEPENDENCE RESEARCH INSTITUTE. THE DATA HE PRESENTS ARE CONSISTENT WITH NMIRIÕS RESEACH ON WHY NM IS SO FAR BEHIND ITS NEIGHBORS IN THE ROCKY MOUNTAIN REGION.)
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