BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 27, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB – 646 as amended by House Consumer and Public Affairs Committee

SPONSOR: Representative Atkins

BILL SHORT TITLE: Income Tax Credit for Premarital and Marriage Maintenance Programs

CONFLICTS, DUPLICATES, COMPANIONS: SB – 497 is identical before amendment. HB – 771 provides a $500 personal income tax credit for persons who “receive counseling” from an accredited marriage counselor (defined in the bill).

DESCRIPTION: This bill provides a non-refundable personal income tax credit of $100 for each resident who complete a six hour/three session course of premarital education and counseling or “marriage maintenance” presented by a licensed therapist or a certified marriage therapist associated with a religious institution. Written certification of completion must be provided to the persons engaging in these programs for attaching to a personal income tax return. Each member of a couple, whether married or contemplating marriage, who complete a premarital education or marriage maintenance program are eligible for a $100 credit.  The HCPAC amendment clarifies who qualified religious personnel are.  

EFFECTIVE DATE: applicable for tax years beginning on or after January 1, 2001

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:

		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(4,000)	(10,000)	Recurring	General Fund	

About 250,000 married returns and 285,000 single and head of household returns are filed showing at least $100 in liability. Thus, this bill exposes the state to a potential $54 million in lost revenue. Other data is relevant. The average number of marriages in New Mexico for the period 1996 through 1998 was about 15,000, while the number of divorces during the same time span averaged about 9,500. Assume 25% of people contemplating marriage, 5% of people currently married and 50% of people contemplating divorce seek counseling or mediation. This is consistent with an estimate of $18M in gross sales from the 1997 New Mexico Economic Census for the category “out-patient mental health clinics.” The incentive provided for tax avoidance, however, suggests the more realistically high “full year” figure.  

ADMINISTRATIVE IMPACT: minimal. Forms and instructions are changed annually, as is the automated processing system. The Department does not have the resources, however, to investigate the issuers of false certificates or problem tax preparers.

TECHNICAL ISSUES:
1.	A popular form of marriage maintenance is “couples’ weekend”. This form of counseling might not be eligible for this credit, since it does not occur in “three separate sessions”.

2.	This tax credit cannot be distinguished from public school vouchers that can be used at parochial schools. The state and federal constitutions effectively prohibit state support of religion. To maximize the possibility of being held constitutional, this credit should be restricted to state-licensed therapists, and delete allowing these credits in this bill to be “spent” in a program sponsored by a religious group. The HCPAC amendment amended the bill to use the phrase “certified marriage therapy representative”, without further defining the term. Only state licensure would avoid this problem.

3.	Neither “premarital education”, “marriage maintenance” or “religious institution” are defined or qualified. Almost any activity conducted by almost anyone could qualify if the stakes are sufficient.

OTHER IMPACTS AND ISSUES:
1.	It is rare that the tax system and a tax credit are the preferred and efficient vehicles for implementing social policy. The purpose of a tax system is primarily to raise revenue to fund essential government services. 

2.	Because this is a non-refundable credit, it will not benefit the 23% of the state’s married population or the 41% of the state’s single and head of household population who do not have any tax liability.

3.	This credit is ideal for quasi-legal tax avoidance. For example, licensed therapists or do-it-yourself church officials could sell certificates of attendance for $25, whether the taxpayer attended sessions or did not. Taxpayers would attach these certificates to their tax returns and benefit through the tax credit mechanism by a net $75. The Department has no possible means of verifying the accuracy of the certificate, since attendance at sessions is largely a confidential matter. We would have no option but to accept the certificate at face value. The HCPAC amendment does not sufficiently restrict this avoidance strategy.

4.	Current marriage status (U.S. Department of Census, 1990 data)
		Now married				
	Never	(excluding				
Total	Married	separated)	Separated	Widowed	Divorced	
552,408	161,891	319,304	8,651	12,842	49,720	
584,092	131,144	316,691	11,879	58,273	66,105	

5.	The 1997 New Mexico Economic Census reports 110 establishments known generically as “out-patient mental health clinics (except physicians)” employing 399 persons and with $18 M in sales.