The Magazine

A Tax-Cutting Democrat

Bill Richardson's New Mexico record.

Mar 5, 2007, Vol. 12, No. 24 • By JENNIFER RUBIN
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In July 2006 the Wall Street Journal touted New Mexico's governor Bill Richardson as a man who "embraced tax cutting and benefited politically." The Journal quoted Richardson approvingly for advising his party that "we have to be the party of growth and the American dream, not the party of redistribution." Which party is Richardson talking about? The Democrats.

Indeed, the former U.N. ambassador and secretary of energy stands out as the only Democratic presidential candidate who has successfully enacted tax cuts and other pro-growth economic policies. When asked about the importance of tax cuts, Richardson says: "Cutting taxes and creating tax credits can be essential to creating jobs and a strong economy." One of his first measures after he was elected governor in 2002 was to cut New Mexico's top income tax rate from 8.2 percent to 4.9 percent over five years. "This was our way of declaring to the world that New Mexico is open for business," Richardson told the Journal in 2005. Echoing what conservatives have been saying for decades, he explained: "After all, businesses move to states where taxes are falling, not rising." At the midpoint of his first term, Richardson earned a "B" rating on the CATO Institute's 2004 Fiscal Report Card on America's Governors. Two years later, CATO explained the rating this way: "His income tax cuts were indeed substantial. The top marginal income tax rate has dropped a remarkable 35 percent as a result of Richardson's actions and is still the largest income tax rate cut in the nation over the past few years."

Richardson seems to relish his tax-cutting image. Reacting to a four-star rating for his pro-growth policies from Inc. magazine in October 2006, Richardson boasted in a press release: "New Mexico is a national leader in job growth, we have invested in better schools and improved access to health care and--most importantly for the business community--we have cut taxes year after year." In his 2007 state of the state address, Richardson continued to advertise his tax cutting credentials, declaring that New Mexico was a state "where tax rates go down, while salaries go up." Most recently, at the winter meeting of the Democratic National Committee, Richardson reminded his audience that he "first passed a specific tax credit for creating good paying jobs" and was responsible for a host of other tax cuts and credits that helped "local companies that showed great promise for success and job creation."

As advertised, Richardson's list of pro-growth measures did include a 10-percent tax credit on wages and benefits attached to each new job paying more than $40,000. As a result, high-skilled manufacturing work rose steadily in New Mexico, as did real wages--on average 2.4 percent a year between 2003 and 2006. Albuquerque, with an unemployment rate of just 4.9 percent, won first place on the 2006 Forbes Best Places for Business and Careers list.

Despite these accomplishments and his consistent pro-growth rhetoric, some observers paint a slightly less rosy picture of Richardson's economic record. Anti-tax advocates have complained that although Richardson did yeoman's work in cutting rates, he more than made up for these cuts with tax increases on everything from cigarettes to fuel and a complicated, Dickensian, and later repealed surcharge on nursing home beds--all totaling a net tax increase of roughly $174 million through fiscal year 2006, according to the conservative Americans for Tax Reform.

In fact, by the end of his first term in 2006, CATO had dropped Richardson's grade to a "C." CATO's experts commented that Richardson's "budget proposals have grown faster each year, and the general fund budgets he signed into law between fiscal 2004 and 2006 have grown in total by a whopping 23 percent--almost five percentage points faster than population and inflation." Richardson's spending increases averaged 7 percent per year until he appeared to abandon fiscal discipline altogether with a proposed 11 percent spending increase for 2007. Such spending increases include, according to Americans for Tax Reform, a 7.4 percent increase in teachers' salaries, a 9.1 percent increase in other education spending, and a whopping 18.4 percent increase in health care assistance. Projects such as a $400 million commuter rail project, which Paul Gessing of the Rio Grande Foundation calls a "boondoggle" serving relatively few people at great cost, have also raised the ire of fiscal conservatives.

Perhaps not surprisingly, Richardson argues that this additional spending went to needed infrastructure and education improvements, and that he maintained a prudent surplus to prevent future liabilities. Defending his spending levels, Richardson says, "My budget plan reflects my vision for the state: Investing in priorities like quality teachers in the classroom, access to health care, and putting money in the pockets of working families. At the same time, I am proposing a fiscally responsible budget, leaving more than $560 million, or 10 percent of recurring appropriations, in reserve." Americans for Tax Reform president Grover Norquist jokes that Richardson at least deserves "credit" for recognizing what few Democrats do: "Reduce the rates and then spend the money that comes in!"

Has Richardson abandoned his pro-growth and low-tax philosophy in lieu of traditional liberal tax-and-spend policies? His supporters say no and point to a 2007 agenda that includes a new working family tax credit, an acceleration of the income tax rate reductions, and a laundry list of new "targeted" tax cuts such as elimination of state income tax for active duty military personnel, tax cuts for investment management firms, tax credits for high tech investment and energy efficient offices and buildings, a one-month tax holiday for purchase of energy efficient appliances, and an "advanced coal incentive." Norquist complains that many of these tax cuts "are so directed as to become indistinguishable from subsidies and direct expenditures." To which Richardson responds that these tax cuts, like those in the past, have widespread economic benefit: "In New Mexico, we've used targeted tax cuts to create incentives for businesses to put people to work, to help middle class families, and cut the tax on food, among others."

Richardson seems to have something for everyone: tax cuts for conservatives and substantial spending for liberals. "The policies and initiatives that have worked here in my state can work across the nation," he says. "I have made economic development one of the cornerstones of my administration, and we have created close to 84,000 new jobs, balanced our budget, and we have the largest surplus in our state's history--$500 million."

Not everyone is impressed, however. Pete du Pont, former Republican governor of Delaware, acknowledges that Richardson is "on the right economic growth track." But du Pont adds that "the other essential ingredient to economic prosperity is to restrain the growth of government spending." Of course, for Democrats (and many Republicans), that may be asking too much.

Jennifer Rubin is an attorney in Virginia.