Opinion: The budget surplus won’t last forever. Now’s not the time to cut the income-tax rate

As we think about the potential effects of Proposition 121, a measure on this fall’s ballot that would decrease the state income tax rate, we are struck by how loudly history, fairness and racial equity argues against this ballot question – if only we’re willing to listen.

Let us explain. We’ve had 30 years of state finances that have been distorted by the Taxpayer Bill of Rights, which imposes an array of restrictions on how Colorado spends money. And despite the rhetoric you may have heard to the contrary, Colorado has barely increased its per capita spending once you adjust for inflation. As a teacher and a doctor, we have seen the effects firsthand.

Prop 121 would reduce annual state revenue by $400 million. At first blush, it might seem like a good idea. The argument goes like this: The state government has these TABOR surpluses – money above the amount the state is allowed to spend according to limits adopted 30 years ago – so why not just cut taxes?

The first problem is, we’ve got a lot of unpaid bills in the form of $9 billion owed to K-12 education, which suffered substantial underfunding during the last 12 years, a whole slew of backlogged transportation projects, and substantial and growing healthcare needs. Each year, we hear calls from struggling teachers for better wages, and wince as school districts are forced to enact four-day school weeks to make ends meet.

The more significant problem is that TABOR surpluses, so long as they continue to occur, have been and will continue to be a key puzzle piece in any conversation about our state’s budget. Over time, the ever-changing TABOR surplus has been part of legislative and public efforts to adequately fund important public priorities.

For instance, last year the state General Assembly used $350 million of TABOR surplus money to temporarily reduce property tax assessment rates, pushing those dollars to counties, which used the funds to backfill the property tax revenue in the hardest hit districts. Just a few years ago, the General Assembly agreed to use the TABOR surplus to fund our statewide senior homestead exemption, which had always been paid for from the General Fund. Both are perfectly legal uses of TABOR dollars over the cap.

These arrangements have cleared room from under the cap to fund priorities like education and transportation. Nevertheless, these services remain underfunded and the General Assembly has little room to maneuver.

When we hit hard times again as a state – and every economist worth their salt is projecting that – we’ll have to cut more. That means we won’t be able to pay those IOUs and will have to further cut expenses instead of putting more money in classrooms, filling potholes and ensuring desperate people get the mental and physical healthcare they need – all of which hit Coloradans of color and rural communities the hardest.

History speaks loudly and clearly on how this will play out. Back in 1999 and 2000, times were good and the state General Assembly cut the state tax rate. In 2000-01, we experienced a recession and state revenues nosedived. With no small amount of effort, state leaders successfully convinced voters to pass Referendum C, which gave the state a five-year reprieve on TABOR’s spending strictures. And thank goodness, because the Great Recession of 2008-10 put state budget writers in the position of having to make painful budget choices once more.

We shouldn’t be making permanent tax cut decisions based on a couple of fat years. Every day, it seems, we’re hearing warning signs about inflation and a potential impending recession. Cutting the tax rate now would be foolhardy at best and truly damaging for many Coloradans.

Moreover, the manner in which those TABOR surpluses are rebated is not a settled question. It turns out that the distribution of the benefits of a permanent tax reduction would be the exact opposite of the $750 checks every Coloradan received this year.

Those with incomes over $1 million – less than 1% of taxpayers – would get nearly half of the total tax savings produced by Proposition 121, according to the Colorado Legislative Council. About 75% of taxpayers would get less than $63 a year. A lot of hard working people – and this cuts across racial and ethnic lines – would get a little in tax savings, while wealthy people and corporations would get the lion’s share.

What we’ve seen, time and again in Colorado, is that the state’s needs don’t go away. The families of our patients and students deserve and should have safe neighborhoods, good schools and decent transportation systems.  The permanent nature of this proposed income-tax rate reduction is the problem. It literally takes $400 million off the table, and in years when revenues under existing rates drop and we are below the TABOR cap, we will sorely miss those dollars. The experience after the 2000 tax reductions is an excellent example of how this plays out.

What history has shown is that our local communities end up having to raise taxes and fees, which is no big deal for wealthy communities but far more painful, if even possible, in poorer communities.

We’d ask you to vote no on Proposition 121. Now is not the time to benefit the wealthy at the long-term expense of the working and middle class.

Angela Cobián, of Denver, is an advocate, former teacher and director of the Denver Board of Education, and a co-chair of The Bell Policy Center Board of Directors.

Stephen Berman, MD, of Denver, is a pediatrician, professor of pediatrics and public health, and emeritus Children’s Hospital Colorado Endowed Chair in General Pediatrics at the University of Colorado School of Medicine. He is co-chair of The Bell Policy Center Board of Directors.