A coalition pushing to overhaul Colorado’s tax system will not pursue a complete repeal of the Taxpayer’s Bill of Rights this year, opting instead for a ballot measure in November that would generate billions in new money with higher taxes on the wealthy.
The new initiative — which is expected to receive final legal approval Wednesday — is designed to create a more equitable tax system in Colorado by lowering the current 4.63% tax rate for households making less than $250,000 a year.
An estimated 95% of taxpayers who are below the threshold would qualify for the tax cut, which would take effect for 2021. For those who make more than $250,000, the additional earnings are taxed at a higher rate up to the maximum of 8.9% for annual taxable income over $1 million.
The organizations behind the ballot question, known collectively as Vision 2020 Colorado, expect the new graduated income tax to generate an estimated $2 billion a year in new money with at least half earmarked to increase teacher salaries and retention. The remainder would be spent at the discretion of state lawmakers.
“We know middle-income Coloradans are paying a greater share of the tax burden than the wealthy 5%, but our tax code isn’t just unfair, it’s inadequate,” said Scott Wasserman, president of the Bell Policy Center, a leading proponent of the measure. The tough decisions made by state lawmakers about how to spend the $30 billion annual budget, he added, are “a purely consequence of our state not having enough money.”
After repeated losses, supporters hope for a different outcome in 2020
The decision to move forward on this measure — shared first with The Colorado Sun — ends months of speculation about the direction liberal advocacy organizations would take in the 2020 election after testing more than 100 different ways, to revamp TABOR or the state’s tax system.
The advocates picked this measure to advance because it gives most households a tax cut, despite earlier concern that a tax break would limit future revenue. “Folks understand that the wealthy in the state need to be paying their fair share,” Wasserman said in an interview.
The possibility of a repealing TABOR — which sets a state spending cap and requires voter approval of all tax hikes — passed legal muster but generated the most controversy and even drew criticism from top Democrats.
Whether a different approach can win support still remains a question after a series of recent attempts to alter the constitutional amendment approved by voters in 1992 proved unsuccessful at the ballot.
The Democratic-led legislature put Proposition CC to remove the state’s spending limits on the November ballot, but it failed. And in 2018, a graduated income tax measure, known as Amendment 73, to increase money for education lost by a wide margin.
This year, the supporters wanted to shift the conversation. “I think people get fairness,” Wasserman said. “Explaining the esoteric ins and outs of TABOR is very complicated and … when you talk about tax fairness, there’s not a lot of explaining you need to do.”
But the forthcoming debate on the new measure won’t entirely sidestep the TABOR question. The state’s current 4.63% flat income tax for all payers is entrenched in TABOR, so the ballot question will propose striking a section of the state constitution.
Jesse Mallory, the state director for Americans for Prosperity, which opposes changes to TABOR, said the new proposal from Vision2020 is “really not that different” from the measure defeated in 2018.
“It’s the same song and dance: Give us more money and there are no guarantees,” he said. “The people of Colorado have repeatedly said no to this sort of thing.”
Under the measure, the new money generated by a graduated tax system would not be subject to the TABOR spending cap, but it does create a commission to oversee the change and require an annual nonpartisan report about how much new revenue the state collected and how it was spent.
How a graduated income tax system would work under the ballot initiative
The state levied a graduated income tax like the federal government until 1987 but switched to a flat tax. And the current tax system in Colorado is well-known as regressive.
Even though higher earners typically pay a larger sum in taxes now, it’s a smaller percentage of their income than the less wealthy. In 2015, the last year of state tax data published, Colorado taxpayers making under $15,000 paid 2.7 times more in effective state and local taxes than those making more than $100,000 — an increase from two years prior.
The ballot measure — marked Initiative 271 — creates four tax brackets for single or joint filers. The tax rate on the first $250,000 in state taxable income would drop to 4.58% from the current 4.63%.
Any income from $250,000 to $500,000 would get taxed at 7%. This represents an increase that would impact about 39,000 tax filers, according to 2015 data.
For those who report income over $500,000 — which is about 19,000 filers — a 7.75% rate would apply on income up to $1 million. And any additional income over $1 million would be taxed at 8.9%, based on the initiative. The brackets are adjusted each year to cover changes in Colorado personal income levels.
(The income tax rate for 2019 was temporarily lowered to 4.5% because of tax revenue that exceeded the TABOR caps.)
Critics suggest a tax increase will fail at the ballot, regardless of which income bracket it targets. “When you look at who the rich are, a lot of those people wouldn’t consider themselves rich,” Mallory said.
If the Title Board gives the measure a final review Wednesday, the advocates can seek approval for petitions and take it to the voters. To get the measure on the ballot, the supporters must collect 124,632 valid voter signatures. The total must include at least 2% of registered voters in each of the 35 state Senate districts because it changes the constitution. If it qualifies, it needs more than 50% in the November election to succeed.
One reason supporters are optimistic their electoral fortunes will change is the presidential election year.
The discussion about equity and taxes on the wealthy is a key issue in the Democratic presidential primary, and the high-stakes race is expected to drive turnout higher than 2018. “It’s pretty hard to not be engaged at all in what’s happening nationally and not talk equity,” Hedges said.
Even critics acknowledge the dynamic may help boost its chances.
In a motion challenging the validity of the ballot question filed with the Title Board, Kelly Brough, the president of the Denver Metro Chamber of Commerce, said it “impermissibly aims to appeal to separate and distinct voting blocs for passage” in a presidential election year when spending on government services “have been and will continue to be hot button topics.”