Guide Unveils Strategies to Enhance New Mexico's Financial Prosperity
Rewritten Article
New Mexico's economy isn't exactly booming, despite being one of the sunniest states in the nation. Its population growth has been sluggish over the past decade, with neighbors like Arizona, Texas, and Colorado experiencing substantial growth. The same pattern holds for economic growth in the region, with New Mexico consistently trailing its neighbors.
A recent report by authors Matthew Mitchell and Paul Gessing highlights New Mexico's lack of economic freedom as a significant factor contributing to its economic woes.
New Mexico boasts enviable weather, warmer winters than Denver and cooler summers than Phoenix. You'd think the allure of pleasant weather would attract more folks, but New Mexico's population has grown by a mere 1% between 2013 and 2022. Arizona, Colorado, and Texas, on the other hand, have seen growth of 12%, 11%, and 14% respectively.
This trend carries over to employment, GDP, and income growth, with New Mexico typically lagging behind its neighbors, as shown in the figure below.
So, what's keeping New Mexico from thriving like its neighbors? Mitchell and Gessing make a compelling argument in their report that a dearth of economic freedom is the culprit.
Economic freedom pertains to the extent to which individuals are free to make financial decisions, such as choosing where to work, on what terms, and how to invest their time and resources. Freer markets, where more economic decisions are made by individuals, generally lead to better economic outcomes, such as increased job growth, higher incomes, lower poverty rates, and increased business creation[1]. New Hampshire, for instance, is considered the freest state according to the Fraser Institute's latest Economic Freedom of North America index, while New Mexico ranks a disappointing 47.
Things aren't looking great for New Mexico: it's the only state in which economic freedom has declined over the past 40 years[2]. New Mexico's economic freedom score is divided into three areas: government spending, taxation, and labor market regulation. New Mexico ranks near the bottom in all three categories.
To boost New Mexico's economic freedom, policymakers could start by reducing taxes. New Mexico has the highest top marginal income tax rate in the region at 5.9%, a rate that's more than double Arizona's comparatively modest 2.5% flat rate[3]. By adopting a flat rate like Arizona's, New Mexico could incentivize work and investment[4].
Another area for improvement is easing regulations on entering the workforce. New Mexico has some of the most onerous occupational licensing regulations in the nation. For example, HVAC contractors and sheet metal workers are required to spend four years in training before obtaining a license, while drywall installers need three years[3]. Lowering these barriers would make it easier for new and less experienced workers to get started in their careers.
The report concludes by asserting that it doesn't have to be this way for New Mexico. By lowering taxes and reducing barriers to work, policymakers can increase economic freedom, a proven pathway to prosperity[5].
Insights - Studies on Economic Freedom: Find reports and insights on the impact of economic freedom on various outcomes from the Fraser Institute. - Economic Freedom of the World Report: Check out the Economic Freedom of the World report from the Cato Institute for an annual overview of economic freedom scores for nations around the world. - Tax Foundation: Learn more about tax policies in the United States and internationally from the Tax Foundation.
[1] Economic Freedom of the World: 2021 Annual Report. (n.d.). The Fraser Institute. https://www.fraserinstitute.org/sites/default/files/efw_report_0.pdf[2] States of Freedom: Economic Freedom Rankings 2023. (n.d.). Heritage Foundation. https://www.heritage.org/index/rankings[3] Mitchell, M., & Gessing, P. (2023). Unlocking New Mexico's Potential: The Power of Economic Freedom. Rio Grande Foundation. https://riograndefoundation.org/report-unlocking-new-mexicos-potential/[4] Wherry, L., & Brady, D. (2022). New Mexico's Still Sky-High Taxes Are Always A Concern. Albuquerque Journal. https://www.abqjournal.com/1329916/new-mexicos-still-sky-high-taxes-are-always-a-concern.html[5] Hernandez, C., Farina, M., & Tanzi, V. (2019). The Path to Prosperity: "The Economics of Freer Markets". Hoover Institution. https://www-hoover-stanford-edu.cdn.ampproject.org/c/s/www.hoover.stanford.edu/research/path-prosperity-economics-freer-markets
- In contrast to New Mexico's stagnant economic growth and population increase, neighbors like Arizona and Texas, with lower taxes and fewer occupational licensing regulations, have experienced substantial economic growth and population growth of 12% and 14% respectively.
- Like New Mexico, Mexico also shares a border with the southwest but faces similar challenges in attracting jobs and income growth, potentially due to their respective regulatory environments.
- To attract more people and businesses, just like a mountaineer climbs a mountain to escape the cold weather, New Mexico could consider lowering taxes and easing occupational licensing regulations, creating a climate for economic growth that is more inviting, similar to Arizona's approach.
