NEW MEXICO (KRQE) – There’s no avoiding death or taxes, but how much you pay in taxes can vary a lot depending on where you live. Different states have different tax rates and structures, so how does New Mexico compare?
The short answer: It depends on which tax you’re considering. After all, there’s sales tax, income tax, and a range of other types of taxes that can apply to individuals and businesses.
When it comes to income tax, it’s difficult to rank states because each state may have different tax brackets. But for the rates in the top marginal bracket, New Mexico ranks around the middle of the pack. As of January 2022, New Mexico’s maximum individual income tax is set at 5.9%, according to an analysis by the Tax Foundation. That’s higher than neighboring states, such as Colorado or Arizona, which max out rates at around 4.5%.
California, on the other hand, has a much higher top rate, at over 13% of personal income. Texas, at the other end of the spectrum, has no individual income tax.
Currently, New Mexico’s income taxes are expected to pay for about 23% of the state’s total budget, according to a recent analysis by the state’s Legislative Finance Committee. Sales tax pays for about 33% of the state’s budget.
In New Mexico, more than 40% of taxpayers fall into the lowest income bracket, according to the Legislative Finance Committee. That means their taxable income is only $5,500 or lower, and they pay a rate of 1.7%.
And 44% of New Mexican taxpayers make between $16,000 and $210,000, the data shows. They pay 4.9% of that income. As for the highest bracket, only 3% of New Mexican taxpayers fall into the top bracket, making over $210,000. They pay 5.9% on that.
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New Mexico’s maximum marginal income tax rate falls in the middle of the pack. Note, this is not the average rate paid by all residents; it’s the rate paid by top earners on the uppermost portion of their income. From the Tax Foundation.
New Mexico’s sales tax is set at 7.84%. That’s an average of state and local tax rates, as calculated by the Tax Foundation.
At that rate, New Mexico ranks as the 15th highest state in the nation. Texas has a slightly higher rate, as does California. But the state with the highest sales tax rate is Louisiana, at over 9.5% on average.
How New Mexico’s taxes have changed
Over the last few years, New Mexico’s lawmakers have made several changes to the state’s tax codes. As a result, the state’s tax system has become more progressive, according to Jennifer Faubion, an Economist, Legislative Finance Committee.
“Our state income tax is very progressive, and it has become even more progressive since 2018, especially at the lower income levels,” Faubion told a committee of state legislators on Wednesday. But, she added that the total tax structure (not just income tax) is actually regressive — meaning higher earners pay less — at the upper end of the tax bracket.
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A chart presented to legislators shows that most New Mexicans have seen a decrease in the percent of income they pay to taxes. From LFC presentation.
For example, the lowest fifth of New Mexican earners pay 7.2% of income to taxes. The middle fifth of earners pay 9.4%. But the top 5% of earners pay between 6.4% and 7.4% of income to taxes, according to data from the Institute on Taxation and Economic Policy.
Still, that’s more progressive than the tax structure was four years ago. In 2018, the lowest fifth of New Mexican earners paid more than 10% of their income to taxes, the data shows.