House Memorial 51

HOUSE MEMORIAL 51

57th legislature - STATE OF NEW MEXICO - first session, 2025

INTRODUCED BY

Patricia A. Lundstrom and Derrick J. Lente and Mark Duncan

and Micaela Lara Cadena and Elaine Sena Cortez

 

 

 

 

A MEMORIAL

REQUESTING THAT THE CONSENSUS REVENUE ESTIMATING GROUP INVESTIGATE AND REPORT ON THE IMPLICATIONS OF STATIC SCORING AND DYNAMIC SCORING ON FISCAL POLICY PROPOSALS.

 

     WHEREAS, accurate economic evaluation is critical to maintaining New Mexico's balanced budget, as required by the state constitution, and to ensuring that tax and budgetary decisions do not create unintended fiscal shortfalls; and

     WHEREAS, static scoring estimates the revenue impact of a fiscal policy change by assuming that taxpayers and businesses do not significantly alter their behavior in response to the change, holding economic output constant and focusing only on direct revenue effects; and

     WHEREAS, dynamic scoring takes into account how tax policy changes may influence broader economic activity, such as employment, investment and consumer spending, which in turn can affect the tax base and overall revenue collections; and

     WHEREAS, while dynamic scoring provides a more comprehensive view of the long-term economic effects of tax policy, it has been shown to introduce greater uncertainty due to the need for economic modeling and assumptions about behavioral responses; and

     WHEREAS, New Mexico relies on fiscal impact reports to assess the revenue and budgetary implications of taxation and spending proposals, and these reports are typically based on static scoring methods that do not account for macroeconomic feedback effects; and

     WHEREAS, dynamic scoring, which considers changes in economic activity resulting from fiscal policy changes, has been utilized in the past in New Mexico, including a two-year dynamic scoring pilot project authorized by House Bill 28 in 2003 for proposals with fiscal impacts exceeding ten million dollars ($10,000,000); and

     WHEREAS, concerns regarding the complexity and uncertainty of dynamic scoring have been raised, including from the consensus revenue estimating group, so that its use was discontinued following the analyses of former Governor Richardson's sponsored tax cuts by the department of finance and administration at the time; and

     WHEREAS, the legislative finance committee's fiscal impact reports have noted difficulties in using dynamic scoring for budget forecasting, highlighting the uncertainty surrounding the magnitude and timing of economic effects beyond direct fiscal impacts; and

     WHEREAS, federal agencies, such as the congressional budget office and the joint committee on taxation, have incorporated dynamic scoring under congressional rules, reflecting an ongoing debate about the role of dynamic scoring in fiscal policy analysis; and

     WHEREAS, previous research, including a 2014 study by the university of New Mexico bureau of business and economic research on corporate income tax changes, has demonstrated challenges with using dynamic scoring in quantifying economic behavior changes resulting from tax policy adjustments; and

     WHEREAS, New Mexico has undertaken significant tax policy changes in recent years, including reductions in gross receipts tax rates and reductions in personal income tax collections, necessitating a clear understanding of the potential revenue implications under both static and dynamic scoring models;

     NOW, THEREFORE, BE IT RESOLVED BY THE HOUSE OF REPRESENTATIVES OF THE STATE OF NEW MEXICO that the consensus revenue estimating group staff be requested to undertake a review of literature and a study of the implications of static and dynamic scoring on fiscal policy proposals, including both taxation and spending and receipts; and

     BE IT FURTHER RESOLVED that on or before September 1, 2025, the consensus revenue estimating group staff report their findings and any recommendations to members of the legislative finance committee, including examples of the application of the two scoring methods on specific examples of revenue changes and spending proposals, which examples shall include the dynamic effects of eliminating or reducing the personal income tax along with a commensurate reduction in state spending and significant additional highway project construction spending with commensurate additional state revenue collections; and

     BE IT FURTHER RESOLVED that copies of this memorial be transmitted to the governor, the secretaries of taxation and revenue, finance and administration and transportation, the chair of the senate finance committee, the chair of the house appropriations and finance committee and the director of the legislative finance committee.

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