The American Interest
Analysis by Walter Russell Mead & Staff
Red Dawn Spreads to New Mexico

reddawnmartinez

To attract business to her state, New Mexico Governor Susana Martinez (R) has taken a page from the playbooks of Governors Bobby Jindal and Sam Brownback: cutting the corporate income tax. While Governor Martinez has yet to follow Jindal and Brownback in their (unsuccessful) attempts to abolish the tax entirely, she clearly wants to join the wave of tax reform sweeping Red America. The FT reports:

 “Businesses have choices and they can go anywhere in the world and if we don’t provide a business-friendly economy they’re not going to come here,” says Ms Martinez, who took office in early 2011.

But it took weeks of tough negotiations with the Democratic legislature and a final all-night round of tense horse-trading for her to clinch a deal. “Without many many many conversations this doesn’t happen,” she says.…

The centrepiece of the New Mexican legislation cuts the corporate income tax rate from 7.6 per cent to 5.9 per cent, phasing it in over five years.

As with other states slashing tax rates, it remains unclear whether the cut will be accompanied by new revenue or just decreased spending. This is a problem that has bedeviled all Tea Party politicians: How do you compete for business and investment without harming low- and middle-income people who depend on social services? This is especially important for Martinez, whose state has some of the lowest educational standards in America and a very high poverty rate. And unlike Jindal’s Louisiana or Brownback’s Kansas, New Mexico is now a relatively blue state that in recent presidential elections has been a lock for Democrats.

As we’ve said before, intellectual ferment in policy reform has been greater in red states than blue ones in recent years. But as far as growth goes, GOP policy is still somewhat uninspiring and a difficult sell at the national level. The party still doesn’t seem to have come up with much in the way of reform and pro-growth policies other than spending cuts on the one hand and tax cuts on the other.

The GOP has the difficult task of convincing voters that it is concerned about those who are struggling in this economy, and of creating a forward-looking governing agenda that fits the times. Reaganomics and endless complaints about the Obama administration won’t get them very far.

[New Mexico Governor Susana Martinez photo courtesy of Getty Images. Red Dawn background courtesy of Shutterstock.]

Published on May 1, 2013 1:45 pm
  • Anthony

    As a student of both capitalism and economics, I always understood that government and business have complementary roles in a mixed economy. I question whether our elected representatives (Red or Blue) conscientiously appreciate active role government must play alongside private market – lower tax-rates and spending cuts resonate in era of fiscal disequilibrium; however, well directed fiscal policies include much more. States cannot rely solely on spending cuts and lower corporate taxes as means to address both financial instability and fiscal imbalances – operating under assumption that cutting tax-rates and constraining regulations will fuel business investment.

    Red and Blue state governors operate in a new reality. The question for me is can U.S. citizenry expect them to meet the challenges created by “The New Globalization”.

  • http://www.facebook.com/alexander.scipio Alexander Scipio

    What Obama fails to (refuses to?) grasp:

    “But it took weeks of tough negotiations with the Democratic legislature and a final all-night round of tense horse-trading for her to clinch a deal. “Without many many many conversations this doesn’t happen,” she says.…

  • Marty Keller

    Further to Anthony’s observation: tax rates are but one factor in the liberalization of a state’s business climate. The regulatory morass must also be addressed, whose impact on economic growth and opportunity is far more difficult and complicated to assess. Here in California each new regulation creates a rent-seeking constituency both in and out of the government, and the economy must contort itself to accommodate the intervention. Do this week in and week out, add in regulators with improper incentives, and then allow each regulation an infinite life span, and pretty soon you have a statist economy that stifles risk-taking and innovation application. The proliferation of unelected regulatory bodies also depresses citizen activism; only the extremely wealthy now play in our state’s election, pushing their pet causes and threatening the regular legislative process. The resulting cynicism, unfortunately, plays into the hands of the statists by creating a sullen and docile electorate. All we can do is to await the inevitable implosion, which will not likely occur as a single dramatic watershed.

  • Jim Luebke

    The GOP’s solution for the poor is to set up an environment where they can get (or create) jobs, and become much less poor.

    Will this work in every case? No, but reducing the ranks of the dependent poor and simultaneously increasing the ranks of the independent and prosperous lets you reduce social spending, and so reduce tax rates.

    Compare that to the Democrats, who want to increase the number of people dependent on government, which will require ever-increasing taxes, until the point that we hit communism by default.

  • Lorenz Gude

    I appreciate the “Red Dawn” irony of he headline. Fact is, there is a lot more experimentation coming from the right than the left at the state level. And a lot more conservatism coming from the left. My dad, an FDR Dem and Keynesian economist used to say ‘Conservatism is generally wrong’. He would explain he meant that defending the status quo was inevitably over taken by events. I suspect he was thinking of Herbert Hoover. I don’t think these Republican governors have found the keys to the future and I am happy to concede that Democratic governors will also contribute to the post-Blue policies and structures that end up working. I see much less coming from DC in the way of new ideas. They are just printing money and quibbling over which version of Blue is true.

  • circleglider

    Thanks for clearing this up for me.

    Via Media is all for creative destruction as long as government revenues are never affected.