Colorado taxpayers will get a break on their income taxes and a refund payment because the state’s cap on government growth and spending under the Taxpayer’s Bill of Rights was exceeded last fiscal year.
The income tax rate will drop to 4.5% in 2021, down from 4.55%, and individual taxpayers will get an additional sales tax refund payment, on average, of about $70. Joint filers will receive $166 on average.
“These tax cuts and refunds are a strong sign that Colorado’s economy is roaring back,” Gov. Jared Polis said in a written statement. “I’m excited that Coloradans will get another income tax cut and refund that Coloradans can put toward bouncing back from the pandemic, a night out, or groceries.”
The state’s TABOR cap is calculated through population growth and inflation. When the cap is exceeded, the legislature is required to refund the excess.
According to the state controller, the cap was exceeded in the 2020-21 fiscal year, which ended in June, by about $454 million after better-than-expected tax revenues were fueled by the state’s economic recovery from the coronavirus crisis.
Fiscal analysts from Polis’ office, as well as nonpartisan legislative analysts, expect the cap to be exceeded in fiscal years 2021-22 and 2022-23 as well.
Democratic lawmakers are examining whether and how to try to keep the excess revenue in future years.
There are three general avenues that the party is exploring:
- Moving potentially hundreds of millions of dollars in fee revenue into enterprise funds, thereby making the money exempt from TABOR cap limits but restricting how the dollars can be spent
- Expanding existing tax credits — like the Child Tax Credit and the Earned Income Tax Credit — to reduce state revenue in a way that benefits lower-income families
- Putting a question on the 2022 ballot that would allow the state to keep the money
In 2019, voters rejected Proposition CC Proposition, which would have eliminated the TABOR cap on the state budget.