There are few things more complicated than the federal tax code. Anytime changes are made to America’s tax system, the impact of those changes will be complicated. Complexity, unfortunately, breeds disinformation.
Using talking points put out by the left-wing Center for American Progress, Democrats in New Mexico’s Legislature have been claiming that federal tax reform would “cost New Mexico millions of dollars.” See news reports here and here.
The issue involves complicated federal budget rules called “Pay as you go” or PAYGO and federal payments to New Mexico relating to natural resources like oil and natural gas that are generated on federally-owned lands in New Mexico.
What’s the truth?
PAYGO is a federal budget rule which says that any increase to the deficit must be offset with a “cut” elsewhere. In Washington, a “cut” rarely means actually reducing government spending. Rather, it is better to stick it to the states which reasonably expect to receive payment for oil and minerals produced on their lands. Fortunately, none of this will happen.
Since PAYGO was enacted in 2010 Congress has simply waived the requirement a total of 16 times in order to enable tax cuts or more spending to be passed. In other words, don’t count on New Mexico and other Western states losing this money (or seeing any other spending cut) to make way for tax cuts.
These tax reforms make sense both in terms of good policy (eliminating the state and local tax deduction) and good economics that will result in stronger economic growth. Democrats in Washington and in New Mexico are unsurprisingly willing to engage in disinformation in order to try to thwart them.
All that said, it would be great if President Trump and Congress got serious about reducing federal spending as a means of boosting the economy and making way for tax reform.