Proposition 121 asks Colorado voters for the second time in two years to decide whether to reduce the state’s individual and corporate income tax rate.
In 2020, voters approved a ballot measure slashing the rate to 4.55% from 4.63%. Proposition 121 would go even further, reducing the rate to 4.4% from 4.55%.
Here’s what you need to know about Proposition 121:
What it would do
It’s pretty simple: Colorado’s individual and corporate income tax rate would be reduced under Proposition 121 to 4.4% from 4.55% starting in tax year 2022, which mirrors the calendar year.
The rate reduction is projected by nonpartisan legislative staff to lower state tax revenue by $412.6 million in the 2023-24 fiscal year, which begins July 1, 2023. That would represent roughly a 2.4% cut to the General Assembly’s general fund.
The general fund hit is likely to go up in future fiscal years as wages increase.
Colorado has had a flat income tax — meaning the rate doesn’t change based on people’s income — since 1987. That means higher earners will save more money if Proposition 121 passes.
In the 2023-24 fiscal year, Colorado taxpayers are forecast to save an average of $119 under Proposition 121. Those savings would drop to an average of $7 for people making $14,999 or less and go up to an average of $6,647 for people making $1 million or more, who represent less than 1% of taxpayers.
Nonpartisan legislative staff estimate that about 75% of Colorado taxpayers would receive a tax cut of less than $63 a year.
(If you want to read the description of Proposition 121 in the state ballot information booklet — also known as the blue book, which is sent to every Colorado voter — you can find it here.)
The arguments for
Proponents of Proposition 121 say it would let Coloradans keep more of their money as they contend with rising consumer costs. They also like how it would reduce the size of state government.
“As costs skyrocket for everyone, Proposition 121 is simply a great first step in giving some money back to the people who deserve it most — the hardworking people of this state,” Michael Fields, a conservative fiscal activist, wrote in a Complete Colorado opinion piece in support of the measure.
The arguments against
Opponents of Proposition 121 are first and foremost concerned about how it would affect state government’s ability to fund programs and services.
In years where tax revenue exceeds the Taxpayer’s Bill of Rights cap on government growth and spending, which is calculated using inflation and population growth rates, there wouldn’t be an effect on the budget. But in years without TABOR surplus, the passage of Proposition 121 would mean state lawmakers have less money to spend.
Secondly, opponents of the measure criticize how reducing the income-tax rate would benefit the wealthy more than the lower-income Coloradans. They’d prefer a progressive tax policy code, where how much people pay is tied to how much they earn.
One big thing you should know
Proposition 121 doesn’t exist on the November ballot in a vacuum.
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It would set aside up to 0.1% of taxable income each year for affordable housing, which is estimated to be $145 million in the current fiscal year — which ends June 30, 2023 — and $290 million in the 2023-24 and subsequent fiscal years.
If Propositions 121 and 123 pass, state lawmakers will be forced to make some tough budgeting decisions in years where there isn’t TABOR surplus, or in years where the surplus isn’t more than about $700 million.
When cuts are made to the state budget, they’re often made to education funding. Some Democratic state lawmakers have expressed anxiety about the prospect of both measures passing.
In years where there is TABOR surplus, both Propositions 121 and 123 would cut into the amount of money available to be refunded to taxpayers — remember those checks you got from the state this year? — though supporters of Proposition 121 would say it’s better not to have to pay the money up front than to have it refunded at a later date.
Proposition 123 is statutory, meaning the legislature could make changes to it and decide not to honor the $290 million affordable housing set aside should they face a tough budget yet. Proposition 121, however, could not be changed by the legislature because under TABOR tax increases require voter approval.
The players and the money
The push to get Proposition 121 on the ballot was led by Jon Caldara, who leads the Independence Institute, a conservative political nonprofit, and state Sen. Jerry Sonnenberg, a Sterling Republican.
Colorado Character was the issue committee initially formed to support Proposition 121. It raised and spent about $550,000 to collect the roughly 125,000 voter signatures needed to get the measure on the ballot.
Defend Colorado, a conservative dark-money group, gave Colorado Character $250,000 on Aug. 3, 2021. Colorado Rising Action, another conservative dark-money group, gave Colorado Character another $250,000 on Sept. 16, 2021. (The Colorado Sun refers to political nonprofits as dark-money groups because they don’t have to disclose their donors.)
Colorado Character, however, is no longer the primary committee backing the passage of Proposition 121. A new group, named Path to Zero, has been formed to campaign for the measure’s passage in November.
Path to Zero hasn’t reported raising or spending any signficant money so far.
The Colorado branch of the national conservative political nonprofit Americans for Prosperity is also campaigning for the passage of Proposition 121.
There isn’t well-funded opposition to the ballot measure yet.
Most Democratic politicians in Colorado are opposed to the measure. Gov. Jared Polis, who often bucks his party on tax issues, is an interesting exception. He says he will vote for the measure, but isn’t actively campaigning for its passage.