Colorado voters were poised to approve Proposition 121 on Tuesday, slashing Colorado’s income tax rate for the second time in two years.
At 11 p.m., the measure had a healthy 65% “yes” to 35% “no” cushion.
The rate will drop to 4.4% from 4.55% starting in tax year 2022 as a result.
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.
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The general fund hit is likely to grow in future 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 the passage Proposition 121. Those savings drop to an average of $7 for people making $14,999 or less and go up to an average savings 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 will receive a tax cut of less than $63 a year because of the passage of Proposition 121.
Proponents of Proposition 121, including Colorado Gov. Jared Polis, a Democrat, argue it will let Coloradans keep more of their money as they contend with rising consumer costs. “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.
Opponents of Proposition 121 were concerned about how the measure will affect the 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 there won’t be an effect on the budget. But in years without TABOR surplus, the passage of Proposition 121 will mean state lawmakers have less money to spend. The TABOR cap is calculated using inflation and population growth rates.
Opponents of the measure also criticized how the measure will benefit the wealthy more than the lower-income Coloradans. They prefer a progressive tax policy code, where how much people pay is tied to how much they earn. “Tax cuts are tempting, aren’t they? But (are they a good) deal for you?” Scott Wasserman, who leads the liberal fiscal nonprofit Bell Policy Center, wrote on Twitter. “You know who they’re a great deal for? Millionaires and billionaires who will be just fine no matter what happens to our state’s finances.”
Brian Sundermeyer, a Republican voter in Colorado Springs, said it was difficult to decide how to vote on Proposition 121, though he ultimately cast a “yes” vote on the measure.
“Lowering the income tax level sounds great because you pay less and everybody wants that, especially in a current recession, an ongoing recession, or at least in these inflationary times,” said the 52-year-old defense contractor who served 17 years in the military. “However, it takes money to run things in government. Coming out of the military, it isn’t cheap.”
He added: “It costs a lot of money to do the things we did well in the military. You can’t want to pay nothing and think somehow all of that is still provided.”
Proposition GG passes, too
Colorado voters Tuesday also were set to approve Proposition GG, which will require the state to more prominently display detailed information about how citizen-initiated ballot measures changing the income tax rate would affect Coloradans.
At 11 p.m., the measure had a healthy 71% “yes” to 29% “no” cushion.
When an initiative changing Colorado’s income tax rate makes the statewide ballot, a table outlining how the change would affect people at different income levels is shared in the state ballot information booklet — also known as the blue book — that’s sent to every voter.
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The table includes the average income tax owed by people at different income levels, as well as how much higher or lower their taxes would be if the rate were changed.
Proposition GG will require that the table — with some slight modifications — also be included in petitions used to gather signatures to get income tax changes on the ballot, as well as on ballots.
The slight modifications include only specifying eight income tax categories and more specific information about how income tax changes would affect individual taxpayers.
Proposition GG, which was referred to the ballot by the legislature, comes as Colorado Democrats are trying to find ways to work on tax policy within the confines of the Taxpayer’s Bill of Rights.
Proposition GG is an extension of legislation passed by Democratic lawmakers in 2021 requiring that ballot measures cutting taxes include an explanation of how much revenue would be slashed and what programs would be most affected. The 2021 bill also now requires that ballot initiatives raising taxes explain how the new revenue would be spent.
In fact, the 2021 bill is the reason why there is a table in the blue book explaining how people in different income brackets would be affected by income tax rate changes.
Who bankrolled the ballot measures and their opposition
Several committees reported supporting or opposing Propositions 121 and GG:
- Coloradans for Ballot transparency raised about $1.4 million and spent $984,000 to support Proposition GG through Oct. 26. The national liberal nonprofit Sixteen Thirty Fund was the group’s largest donor at $500,000. The Colorado Sun refers to the Sixteen Thirty Fund as a dark-money group because it doesn’t have to disclose its donors.
- Colorado Character spent $545,000 to get Proposition 121 on the ballot. Most of its money came from the conservative dark-money nonprofits Defend Colorado and Colorado Rising Action.
- Keeping Colorado Great spent $290,000 to oppose Proposition 121, while raising $295,000 through Oct. 26. The National Education Association gave the committee $250,000 of its money.
- Coloradans Coming Together, created in the final weeks of the campaign, raised about $77,000 to oppose Propositions 121 and support GG.
- Great Education Colorado Issue Committee, funded by education unions, spent nearly $160,000 to support GG and another measure, Proposition FF, while opposing Proposition 121.
- Americans for Prosperity Issue committee spent more than $35,000 to support Proposition 121.
- Path to Zero, funded by the dark-money nonprofit libertarian think tank Independence Institute, spent about $9,000 supporting 121.
Colorado Sun staff writer Olivia Prentzel contributed reporting from Colorado Springs.