The Colorado legislature is on track to issue about $2 billion in taxpayer refunds through a system that the Democratic majority at the state Capitol has previously blasted as inequitable.
State lawmakers have broad authority over how to refund money collected above the Taxpayer’s Bill of Rights cap on government growth, which is calculated annually based on population and inflation increases. But this year, lawmakers are choosing not to exercise that power and instead rely on a default refund mechanism adopted by the General Assembly in 1999, when Republicans were in charge.
The default mechanism links refund amounts to each taxpayer’s income, based on six income tiers. Under the system — called the six-tier sales tax refund mechanism — people who make more money get bigger refund checks in the mail. The approach is meant to refund more money to people who pay more in taxes.
The checks are expected to arrive after people file their tax returns each spring following fiscal years in which there is TABOR surplus.
However, in 2022, ahead of the November election, Gov. Jared Polis and Democrats in the legislature made a one-year change, sending out TABOR refund checks much earlier — in August and September — and in amounts that were the same for everyone as opposed to tied to income. Each Colorado taxpayer received $750 or $1,500, depending on whether they were a single tax filer or a joint filer.
Democrats argued that the flat refunds were more equitable because they ensured people who most needed the money received more than they would have gotten under the six-tier system.
The governor and Democratic state lawmakers celebrated the refunds — branding the checks a “Colorado dividend” — even though the party has in the past pushed to end TABOR refunds and generally loathes TABOR, the 1992 constitutional amendment approved by voters.
This year, however, Democrats have decided to revert to the six-tier system.
“That’s the plan right now,” Senate President Steve Fenberg, D-Boulder, told reporters last week.
And with about a week left in the 2023 legislative session, which ends May 8, there’s not much time for lawmakers to reverse course.
“I think we want to find something that’s equitable,” Fenberg said, “but in the long term.”
Two sponsors of last year’s bill that made the refund checks flat and sent them out earlier told The Colorado Sun they would have preferred the legislature continued the flat-rate system.
“It was the most equitable solution,” said Sen. Robert Rodriguez, D-Denver.
Sen. Tony Exum, D-Colorado Springs, said he thinks the six-tier refund mechanism is unfair. But, he said, “it’s not my decision.”
That’s a nod to Capitol leadership’s view of how TABOR refunds should be handled. But Senate Majority Leader Dominick Moreno, D-Commerce City, was the most blunt about his feelings on the six-tier mechanism.
“I think we’ve demonstrated that the six-tier sales tax rebate system is not equitable,” Moreno said earlier this year. He argues that if Colorado is refunding taxpayer money, people who need the dollars most should get more benefit.
Republicans, meanwhile, are calling Democrats hypocrites for reverting to the six-tier mechanism. “It’s not an election year,” observed Rep. Rod Bockenfeld, R-Watkins.
The governor’s office didn’t respond to requests for comment. Polis said late last year that he wanted to use the TABOR surplus to lower Colorado’s income tax rate, which is how money was refunded before voters approved a 2022 ballot measure slashing the rate so low that a reduction was no longer automatically triggered.
Michael Fields, a conservative fiscal activist who leads the political nonprofit Advance Colorado, said he’s OK with Democrats using the six-tier system. “I think the important thing is that TABOR refunds are going back to taxpayers instead of the government keeping and spending (the money),” he said.
But the Bell Policy Center, a liberal-leaning fiscal policy nonprofit, has called the six-tier system unfair. It pointed out in 2021 that 79% of Colorado taxpayers fell into the bottom three tiers.
“While the income amounts in each tier has changed over time, the percentage of Coloradans in each tier and the percentage of the dollars available that go to each tier has not,” the organization wrote in a policy paper.
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.
Read more here.
The exact amount of money the legislature will have to refund is in flux. The Governor’s Office of State Planning and Budgeting forecast in March that the state would collect $2.7 billion in excess of the TABOR cap in the current fiscal year, which ends June 30. (That’s money that would be refunded in April 2024.)
That amount is subject to change based on economic conditions. The legislature is also planning to tap into potentially hundreds of millions of dollars of the surplus to expand tax breaks for families and lower-income Coloradans and to offer people relief from what is expected to be a sharp rise in property tax bills. And, finally, about $150 million of the TABOR refunds will automatically go to local governments to account for any property tax exemptions claimed by local seniors and disabled veterans.
In the end, the surplus available for refund checks may be closer to roughly $2 billion, according to Colorado Sun estimates.
Nonpartisan Legislative Council Staff projected in March that, under the six-tier system, Colorado taxpayers with an adjusted gross income of less than $50,001 in 2023 would get a $480 TABOR refund check if they are a single filer and a $960 if they file jointly.
LCS projects that people in the top income tier, who have an adjusted gross income of $279,001 or more, would get a $1,514 refund check if they are a single filer and a $3,028 check if they file jointly.
There was talk among some Democrats earlier this year about asking Colorado voters to forgo their TABOR refunds and direct the money to K-12 education funding. That plan, however, was never formally pursued.