Though many people continue to struggle to make ends meet, and the cost of living in Colorado continues to rise, by any typical measure Colorado’s economy is booming. On average, incomes are rising, jobs are returning —and, in turn, the state is collecting more tax revenue than it’s allowed by the state Constitution to keep and save for a rainy day or invest in needed services for a growing state.
Because of these constitutional provisions — also known as the Taxpayers’ Bill of Rights, or TABOR — the state is set to rebate billions of dollars to Coloradans over the next few years. Though the Constitution ties the General Assembly’s hands when it comes to retaining this tax revenue, it gives lawmakers broad authority over how the money should be rebated.
While the numbers show a booming economy, the pandemic recovery hasn’t been equal. People who earn higher incomes are benefiting the most from wage increases and job growth, while inflation is squeezing people who work low-wage jobs and middle-class families.
Unfortunately, unless lawmakers act, the state is on the verge of using an outdated, needlessly complicated, and unfair mechanism to rebate the money that will exacerbate inequality. That’s because, in addition to a smaller amount rebated through a property-tax break for older people and veterans with disabilities, most of the money will be distributed using what’s known as the “Six-Tier Sales Tax Rebate.”
To determine how much of a rebate each income group gets, state analysts reverse-engineer the rebate amounts using demographic information from 1999 to determine how money should be rebated in 2022. Under existing law, the wealthiest will get the largest rebates and those for whom every dollar counts most will receive the smallest.
This makes no sense. Every Coloradan with taxable income pays the same income-tax rate. Yet the rebates are calculated on a tiered scale. In addition to being overly complex, a tax rebate shouldn’t be linked to how much income someone earns.
With no change this year, Colorado will be rebating billions of dollars to people who least need a tax break. Wealthy people shouldn’t be getting an outsized share of record-breaking tax rebates. Instead, lawmakers should be laser-focused on targeting any tax rebates to working families who earn low and moderate incomes.
Fortunately, there’s a simple solution. Under a plan being promoted by the Colorado Fiscal Institute and others, lawmakers would scrap the existing, complicated rebate mechanism and would instead simply give everyone identical rebates regardless of income level.
In addition to being simple, it’s fair. Unless lawmakers act, a millionaire will get nearly $2,000, while the average starting teacher earning less than $40,000 will get just over $300.
If everyone got identical amounts, rebates for thousands of teachers, nurses, and other working Coloradans would go up by more than 50%. This would give them a couple hundred more dollars to better afford rising costs, and because families who earn low and moderate incomes are more likely to spend that money in their local communities than people who earn higher incomes, it will be better for the state’s economy too.
As former members of Colorado’s Joint Budget Committee, we both know how important bipartisan support is at the Capitol when it comes to fiscal policy. This commonsense proposal should be appealing to both sides of the aisle because both parties agree the tax code should support working families, not only the wealthiest people and big corporations.
That Colorado is going to rebate billions of dollars in already collected tax dollars isn’t up for debate. The issue is whether the money will be targeted in a way that reflects the uneven 2022 economy, makes our tax code fairer for working families, and is done in as simple and understandable a way as possible.
Claire Levy, of Boulder, and Don Marostica, of Loveland, are former state legislators and were both members of the bipartisan Joint Budget Committee in the Colorado General Assembly.
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