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Politics and Government

Is Colorado’s 2019 ballot question about TABOR spending caps really a tax hike? The answer is sort of.

The question at the heart of the political debate for November's ballot leads to two correct and seemingly contradictory answers

  • Credibility:

Both sides see the answer to one question as critical to their chances at the 2019 ballot box: Is Proposition CC a tax hike?

The referred measure to eliminate the state’s revenue cap this November represents the biggest fight over the Taxpayer’s Bill of Rights since voters added it to the Colorado constitution in 1992. And the answer to the question has become something of a political Rorschach test:

“The (tax) rates are not changing at all,” says House Speaker KC Becker, the Boulder Democrat who sponsored the measure. “It’s not increasing your taxes.”

But Michael Fields, executive director of the conservative political group Colorado Rising Action, disagrees. “How would a reasonable person see this? When you keep and spend more of our money, it’s a tax increase.”

So who’s right? Both.

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In reality, the answer to the question is a little like the frustrating math problem that recently went viral. There are two correct and seemingly contradictory answers. And the question itself is largely to blame.

Tax policy experts across the political spectrum agree that the proposal meets at least some definition of the term “tax increase” even if it doesn’t increase the tax rate. But there’s enough ambiguity in the phrase that simply calling it a tax hike — or not — could mislead voters into thinking the proposal does something it doesn’t. And with voter clarity in mind, the Colorado Supreme Court has taken a more limited view of what constitutes a tax increase than some conservatives may like.

To understand, let’s first review what Prop. CC actually does.

Under the Taxpayer’s Bill of Rights, or TABOR, state government spending in Colorado is restrained by a revenue cap. It says that if certain tax and fee collections rise faster than the rate of population growth plus inflation, the excess revenue must get sent back to taxpayers in the form of refunds, unless voters give permission for the state to keep the money.

Prop. CC would eliminate that cap at the state level, allowing the state to keep and spend all future excess revenue on transportation, K-12 schools and higher education rather than refunding it to taxpayers. This process is also known as “de-Brucing,” a reference to TABOR co-author and former state lawmaker Douglas Bruce.

Here’s the exact wording that voters will see on the ballot:

“Without raising taxes and to better fund public schools, higher education, and roads, bridges, and transit, within a balanced budget, may the state keep and spend all the revenue it annually collects after June 30, 2019, but is not currently allowed to keep and spend under Colorado law, with an annual audit to show how the retained revenues are spent?”

This much is not debatable: Prop. CC does not increase the tax rate.

If voters approve Prop. CC in November, the state sales tax rate wouldn’t change, and neither would the state income tax rate. In other words, Colorado residents would owe the same amount to the state government next year whether the law change passes at the ballot or not.

“Right now, the (income) tax rate is 4.63% and there’s nothing in this measure that is going to raise your tax rate beyond what it is today,” said Scott Wasserman, president of the liberal Bell Policy Center, which is supporting the measure. “As a matter of just substantive fact, there’s nothing in there that raises your tax rate.”

But Prop. CC does increase a person’s tax liability over time. And this is what conservatives mean when they say Prop. CC is a tax increase.

Without the revenue cap in place, the state government would be able to spend more of the tax dollars it collects in the future. And — even though taxpayers aren’t technically paying the government more than the current rate — Coloradans would be left with less money in their wallets, because they wouldn’t get any of it back the next time the state surpasses the revenue cap.

In tax policy speak, without those refunds, a person’s overall “tax liability” would go up, because the government would be able to spend more of their dollars, and they would get to spend less of what they earn for themselves.

“I don’t think it’s a semantic question at all,” says Sloan Speck, an associate professor of law at CU who specializes in tax policy. “The number of dollars that are being taken by the state for public purposes is going to increase by the proposition. That’s a tax increase, I think, pretty clearly.”

State tax collections fluctuate with the economy, so there’s no way to say for sure how much money taxpayers would be giving up. 

But legislative economic forecasts provide a rough idea, predicting that single tax-filers making between $39,901 and $85,300, would miss out on an estimated $35 to $40 a year in refunds over the next two tax years. Joint filers would lose $70 to $80 a year. (An important note: Refunds owed in 2020 on taxes collected this year would not be affected by the ballot measure.)

Those refunds may seem small, but cumulatively add up. In total, Prop. CC could wipe out between $652 million and $1 billion in refunds in the first two years, according to economic forecasters.

MORE: How much Colorado taxpayers will get in TABOR refunds depends on these two wildcards

So does that make Prop. CC a tax hike? Arguably so. 

The problem is, the phrase “tax hike” could mean different things to different voters.

Some may think it refers to their overall liability, and that losing future refunds could make it go up. Others may hear “tax hike” and mistakenly believe the proposition would increase the amount they pay to the government through payroll deductions or purchases. But Prop. CC won’t increase the rates people pay.

“It’s true that getting rid of the TABOR cap would not raise tax rates, but it is pretty common to just talk about taxes without saying specifically what,” said Katherine Loughead, a policy analyst from the Tax Foundation. “Are we talking about rates? Are we talking about liability? Are we talking about burden?

“There’s lots of different ways to talk about taxes and how much is owed,” she said.

But wait: The ballot initiative text says “without raising taxes.” Isn’t that misleading, too?

Conservatives argue it is. But a review of other so-called “de-Brucing” measures found that the phrase is commonly used at the local level when government officials ask the public to keep revenue beyond the spending cap.

A 2017 Littleton measure starts like this: “Without creating any new tax or increasing any current taxes…” 

A Jefferson County ballot measure this fall begins like this: “Without creating any new tax or increasing the current authorized county mill levy without further voter approval…” But unlike the Littleton proposal and Prop. CC, it goes a step further, providing a specific example of how much taxpayers stand to lose without the spending cap in place.

Fort Collins’ 2016 de-Brucing measure doesn’t mention raising taxes or not. Instead, it states that the sales tax in question would stay at 0.85%.

But the state Supreme Court has endorsed a limited definition of “tax increase.”

In 2006, the court rejected a lawsuit brought by Bruce, the TABOR co-author, claiming that the city of Colorado Springs violated the state constitution when it asked voters to extend an existing tax for parks and trails.

The case didn’t involve a de-Brucing measure, so it’s not a perfect comparison to Prop. CC. But the reasoning offered by the court provides some insight into how it defines a tax increase.

MORE: Read more politics and government coverage from The Colorado Sun.

Bruce’s lawsuit argued that the city should have to ask voters to raise the parks tax because it was expiring, and thus would trigger certain ballot language requirements under TABOR. In other words, even though today’s tax rate wasn’t increasing, the measure would have increased city residents’ overall tax liability tomorrow, because the rate would stay the same in the future instead of going down.

The state Supreme Court sided with the city, writing that calling it a tax increase was “more likely to cause confusion than assist the voters.”

“Labeling the extension an ‘increase’ suggests that the costs of the tax will be greater than present levels, and thereby risks confusing the electorate,” former Justice Alex Martinez wrote in the majority opinion.

The specifics aren’t the same as Prop. CC, but they achieve strikingly similar things: an increase in future tax liability without a change in the tax rate. Like the Colorado Springs case, eliminating TABOR refunds effectively prevents future tax cuts, either through sales tax refund checks or a temporary income tax cut, which kicks in automatically if the state goes too far over the cap.

MORE: Colorado voters leaning toward approving the elimination of state spending caps under TABOR, poll finds

On one thing all sides agree. The language used to describe Prop. CC absolutely matters.

The important thing for voters to know ahead of November is what they’re voting on. So given the number of ways one can reasonably define the term, the question of whether it’s a “tax hike” or not isn’t especially helpful — even if it will be used as a political weapon in the election.

Instead, much as the Supreme Court warned in 2006, the political fixation on a vague phrase is “more likely to cause confusion than assist the voters.”

The bottom line that voters need to know: The tax rates they are required to pay to the government would not go up under Prop. CC. But it would prevent future refunds and potential tax cuts, meaning it could increase their overall tax liability in the long term.

Rising Sun