Checks in the mail? An income tax cut? Property tax relief?
State government is expected this year to collect $2.7 billion in tax revenue above Colorado’s constitutional cap on government spending, according to the Governor’s Office of State Planning and Budgeting, money that the Democratic majority in the legislature will have to decide how to refund.
The decision has to be made before the 2023 legislative session ends May 8, meaning lawmakers will have to act fast on the big-ticket item. The legislature didn’t learn until earlier this month, when it received its quarterly economic and tax revenue forecasts, how much money collected in the 2023-23 fiscal year, which runs through June 30, it would have to return.
The Taxpayer’s Bill of Rights, a 1992 constitutional amendment approved by Colorado voters, caps governmental growth each year to population increases and the rate of inflation. Any money collected over the cap has to be refunded, but the legislature has broad discretion over how the refunds are issued.
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Current law requires that the state first use the TABOR surplus to reimburse local governments for any property tax exemptions claimed by local seniors and disabled veterans. Last year, that was about $161 million of the more than $3.5 billion in TABOR cap excess.
Next, the money is slated to get distributed through what’s called the six-tier sales tax refund mechanism, which ties refund amounts to each taxpayer’s income, based on six tiers. Under the system, people who make more money get bigger refund checks in the mail.
But Senate Majority Leader Dominick Moreno, D-Commerce City, indicated that lawmakers will move away from the six-tier system.
“I think we’ve demonstrated that the six-tier sales tax rebate system is not equitable,” Moreno said. “I’m sure there will be conversations about how to bring equity into the TABOR refunds.”
Last year, Democrats in the legislature and Gov. Jared Polis enacted a flat-rate refund mechanism, sending checks of $750 or $1,500 to Coloradans depending on whether they are single or joint tax filers. It’s possible a similar system could be used to refund this year’s TABOR surplus, though the size of the checks likely would be smaller.
What is TABOR?
The Taxpayer’s Bill of Rights, or TABOR, is a 1992 constitutional amendment that requires voter approval for all tax increases in Colorado. It also caps government growth and spending, mandating that tax revenue collected in excess of the cap be refunded to taxpayers. The cap is calculated using inflation and population rates.
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Moreno said some of the surplus also may be used to drive down Coloradans’ property tax bills, which is what happened last year.
“We did establish a precedent of using temporary funding dollars for property tax relief. It’s possible that continues,” Moreno said.
House Speaker Julie McCluskie, a Dillon Democrat, said she hasn’t been part of TABOR refund conversations yet. “I’m happy to follow up with you when we’ve had those conversations,” she said.
Polis said before the legislative session began in January that he’d like to see the surplus used to lower Colorado’s income tax rate, which is how the TABOR excess has traditionally been refunded.
State law requires lawmakers to cut the rate to 4.5% when the TABOR cap is exceeded by more than roughly $160 million. But voters in November approved Proposition 121, which permanently cut Colorado’s income tax rate to 4.4% from 4.55%, making that refund mechanism moot.
Democrats in the legislature, however, are likely to push back on an income tax cut because doing so would provide more benefit to higher earners.
The TABOR refund conversation could all be for naught if there’s a recession that significantly reduces tax collections through the end of the 2022-23 fiscal year June 30. And even if there is TABOR surplus to return to taxpayers, Coloradans may not get their refund checks until the spring of 2024.