The expansion of the federal child tax credit in 2021 made a dent in how many U.S. children are living in poverty, but it ended after just one year. New Mexico, a state with the second highest child poverty rate in the country, quickly passed its own version of the tax relief for people with children last year. While parents won’t see the benefits of the state credit until they file taxes next year, lawmakers are already debating whether to increase it.
A 2020 study by the Center for American Progress estimates the families of nearly a quarter of New Mexicans under 18 years old have incomes below the poverty line. The state child tax credit that passed last year covers all New Mexicans with children, aiming to supplement the federal credit that is now back to a maximum of $2,000 per child under 17 years old. It briefly expanded under the American Rescue Plan Act to $3,600 for children under 6 years old, and $3,000 for those under 18 years old.
How big of a rebate New Mexicans with children will receive in the state tax credit’s current iteration depends on where their income falls across seven brackets, with those making $25,000 or less getting the largest amount at $175. The tax credits drop by $25 dollars for each income bracket from there, with the smallest rebate of just $25 going to families that make at least $350,000 per year.
A bill working its way through the New Mexico House of Representatives this year would substantially increase the tax credit for the bottom three brackets, which include anyone making $75,000 a year or less. The amounts for the upper four brackets would remain unchanged.
The $175 credit for those making the least would more than triple to $600, the $150 credit for those making between $25,000 and $50,000 would increase to $400, and the $125 credit for those making between $50,000 and $75,000 would become a $200 credit.
Amid record inflation, House Bill 144, sponsored by Democratic Reps. Christine Chandler and Derrick Lente, would also tie the credits to the consumer price index so they don’t lose value over time.
“We are at a place in our budget where I think we can afford it,” Chandler told the House Health and Human Services Committee at the measure’s first hearing. “And it has also been shown nationally and in the state to help lift families and children out of poverty.”
A study from the Brookings Institution last year found that the 2021 expansion of the federal child tax credit helped 3.7 million children in the U.S. get out of poverty. It also found it improved families’ food and financial security, along with child development. An estimated 420,000 New Mexico children benefited from the federal program, according to the White House.
The federal credit still exists, though the pandemic-era expansion ended in December 2021. It had included higher credits that were fully refundable, expanding it to 17-year-old children, and doling out half of it as monthly advance payments in the 2021 tax year itself.
In the New Mexico Senate, a bill sponsored by Democratic Sen. Bill Tallman and Democratic Rep. Pamelya Herndon would also increase the state Child Tax Credit, but by much less than the House version for families with the lowest incomes.
Senate Bill 52would up the state credit across all income brackets by 15%. That would mean a $4 bump for the highest-earners, and a $27 increase for parents with the lowest incomes of $25,000 or less. Unlike the House proposal, the Senate measure doesn’t have a mechanism to account for inflation.
New Mexico Voices for Children Senior Research and Policy Analyst Paige Knight spoke in favor of the Senate bill at a committee hearing Wednesday, though expressed a preference for the House version that would only raise the amount for families with lower incomes.
“A more substantial increase targeted to those who are struggling the most financially is more likely to provide the benefits and impact our kids really need at this time,” she told lawmakers on the Senate Tax, Business and Transportation Committee.
The House bill would cost the state more than the Senate version no doubt, but the Legislative Finance Committee said the actual amount of the tax expenditure “is difficult to determine but likely significant.” In its fiscal impact report, the LFC estimates that House Bill 144 would cost the state over $102,000 in its first two years, increasing to nearly $107,000 in fiscal year 2026, and $109,000 by fiscal year 2027. By contrast, the LFC estimates Senate Bill 52 to cost the state $11,000 annually.
The House bill passed its first committee hearing unanimously and will get its next vetting Friday, Feb. 10, in the House Taxation and Revenue Committee. Meanwhile, the Senate version has a chance of being included in a tax package still being crafted by that chamber’s lawmakers.
