Lower my tax bill and soak the rich? Allow the state to spend more money on the environment and education without raising taxes? As a lower income earner, outdoorswomen, and public school substitute teacher I stand to benefit from Amendment 87 and Colorado Propositions 137 and NN on the November ballot. Even so, I will be voting against all three. Raising taxes will hurt my native state and my bottom line over the long run.
I was in high school when Colorado Governor Roy Romer signed the bill to make Colorado the first state to replace its progressive income tax with a flat tax. Today,15 states have instituted a flat income tax and nine states have no state income tax at all. Where adopted, these tax reforms have spurred economic growth. Adopting a flat tax on income is “associated with roughly 1 percentage point faster growth in per capita income and state GDP four years after the reform, or almost $4,000 more income per resident,” a new study by the Cato Institute, a Libertarian think tank, found.
With its 4.4% flat tax on individual, Colorado ranks 30th nationally for top marginal state individual income tax rates according to the Tax Foundation. Our neighbors Nebraska, Utah, and Oklahoma have similar rates, Arizona has a lower rate and Wyoming does not tax individual income. Colorado’s corporate income flat tax of 4.4% ranks 39th highest nationally and is competitive with neighboring states that tax corporate income (Wyoming, South Dakota, and Nevada do not tax business income). On sales taxes, Colorado ranks 16th highest and on property taxes, 44th. Overall, Colorado offers a relatively balanced and competitive tax structure.
Amendment 87, however, would eliminate our competitive edge and imperil our state’s economic growth. The proposal would amend the Colorado constitution to replace the flat tax with a six-bracket system. Income of less than $25,000 would be taxed at 3.7%, $25,001 to $100,000 at 4.2%, $100,001 to $500,000 at 4.4%, $500,000 to $750,000 at $7.4% and more than $1,000,000 at 8.4%.
This nearly $2 billion tax increase will not be without consequence. Governor Jared Polis believes the tax increase will be “absolutely devastating.” “You can have a graduated income tax that’s not a tax increase. That’s not what this is. This is a big tax increase,” he said.
He’s right. If Amendment 87 passes, our top marginal rates will resemble those of the Northeast and Pacific Coast. We will no longer be competitive nationally or regionally. Wealthier individuals and successful businesses will relocate to neighboring states. The skiing is just as good in Utah and the mountain vistas are just as pretty in Wyoming, South Dakota and Arizona.
So, while I would save money on my next tax bill if the proposal passes, I will also see my income drop over time as clients leave and the economy slows.
That’s not all. Under TABOR, when the state collects more money than the limit, taxpayers are refunded the excess. If Amendment 87 passes, the additional revenue collected under the new scheme will not be subject to the TABOR revenue cap.
Amendment 87 isn’t the only effort to eliminate TABOR refunds. Colorado Propositions 134 and NN would likewise exempt revenue from the TABOR cap. The former would allow the state to keep excess state sales tax paid on sporting goods and outdoor equipment to spend on land and water conservation, wildlife management, outdoor recreation and wildfire mitigation. The latter would divert excess revenue to public K-12 education. Both proposals disingenuously state they intend to direct funding to these laudable efforts “without raising taxes.” Spending taxpayer refunds is a tax increase.
Moreover, it is the responsibility of the legislature to allocate funding for these public purposes as appropriate. Should public education get billions more money even though enrollment has significantly declined and will continue to do so given lower birthrates and less in-state migration? Which environmental programs should be prioritized? How should the billions of dollars paid by taxpayers best be allocated? These are complex matters that require the focused attention of lawmakers. The General Assembly convenes in January. In the meanwhile, Coloradans should vote no on Amendment 87 and Colorado Propositions 137 and NN.