Income

Coloradans will decide whether or not to cut the state income tax rate – again

Proposition 121 asks Colorado voters for the second time in two years to decide whether to cut the state’s personal and corporate income tax rate.

In 2020, voters approved a ballot measure reducing the rate to 4.55% from 4.63%. Proposition 121 would go even further by reducing the rate from 4.55% to 4.4%.

Here’s what you need to know about Proposition 121:

What would that do

It’s pretty straightforward: Colorado’s personal and corporate income tax rate would be reduced under Proposition 121 to 4.4% from 4.55% starting in the 2022 tax year, which reflects the calendar year.

Nonpartisan legislative staff project that the rate reduction will reduce state tax revenue by $412.6 million in the 2023-24 fiscal year, which begins July 1, 2023. This would represent a reduction of approximately 2.4% of the general fund of the General Assembly.

The general fund hit will likely increase in future years as salaries increase.

Colorado has had a flat income tax — meaning the rate doesn’t change based on people’s income — since 1987. That means high earners will save more money if Proposition 121 passes.

In fiscal year 2023-24, Colorado taxpayers are expected to save an average of $119 under Proposition 121. Those savings would drop to an average of $7 for people earning $14,999 or less and rise to an average $6,647 for people earning $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 per year.

(If you want to read the description of Proposition 121 in the state’s Ballot Information Booklet — also known as the Blue Book, which is mailed to every Colorado voter — you can find it here.)

The arguments for

Proponents of Proposition 121 say it would allow Coloradans to keep more of their money as they face rising consumer costs. They also like how it would reduce the size of state government.

“As costs soar for everyone, Proposition 121 is simply a great first step in giving money back to the people who deserve it most – the hardworking people of this state,” wrote Michael Fields, a Conservative tax activist, in a comprehensive notice from Colorado. document in support of the measure.

The arguments against

Opponents of Proposition 121 are first and foremost concerned about how it would affect the state government’s ability to fund programs and services.

In years when tax revenue exceeds the Taxpayer Bill of Rights ceiling on government growth and spending, which is calculated using rates of inflation and population growth, there would be no effect on the budget. But in years without a TABOR surplus, passing Proposition 121 would mean state lawmakers would have less money to spend.

Second, opponents of the measure criticize that reducing the income tax rate would benefit the wealthy more than low-income Colorados. They would prefer a progressive tax policy code, where how much people pay is tied to how much they earn.

One big thing you need to know

Proposition 121 does not exist on the November ballot in a vacuum.

Proposition 123 is another measure introduced to voters in November that would affect the state budget.

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It would set aside up to 0.1% of taxable income each year for affordable housing, which is estimated at $145 million for the current fiscal year — which ends June 30, 2023 — and $290 million for financial years 2023-2024 and following.

If Propositions 121 and 123 pass, state legislators will be forced to make tough budget decisions in years when there is no TABOR surplus, or in years when the surplus does not exceed about $700 million. .

When cuts are made in the state budget, they often concern education funding. Some Democratic state lawmakers have expressed concern about the prospect of the two measures passing.

In years when there is a TABOR surplus, Propositions 121 and 123 would reduce the amount of money available to be refunded to taxpayers – remember those checks you got from the state this year? — although Proponents of Proposition 121 would say it’s better not to have to pay the money up front than to have it paid back at a later date.

Proposition 123 is statutory, which means the Legislature could make changes to it and decide not to honor the $290 million in affordable housing set aside if they still face a tight budget. Proposition 121, however, could not be changed by the legislature because, under TABOR, tax increases require voter approval.

Players and Money

The push to get Proposition 121 on the ballot was led by Jon Caldara, who heads the Independence Institute, a nonprofit conservative political organization, and State Senator Jerry Sonnenberg, a Sterling Republican.

Colorado Character was the issuance committee originally formed to support Proposition 121. It raised and spent approximately $550,000 to collect the approximately 125,000 voter signatures needed to put the measure on the ballot.

Defend Colorado, a conservative black money group, gave Colorado Character $250,000 on August 3, 2021. Colorado Rising Action, another conservative black money group, gave Colorado Character an additional $250,000 on September 16, 2021 (The Colorado Sun refers to political nonprofits as black money groups because they don’t have to disclose their donors.)

Colorado Character, however, is no longer the main committee supporting passage of Proposition 121. A new group, named Path to Zero, has been formed to campaign for passage of the measure in November.

Path to Zero has not reported raising or spending any significant money so far.

The Colorado branch of the nonprofit conservative national political organization Americans for Prosperity is also campaigning for passage of Proposition 121.

There is no well-funded opposition to the ballot measure yet.

Most Democratic politicians in Colorado oppose the measure. Governor Jared Polis, who often opposes his party on tax issues, is an interesting exception. He says he will vote for the measure, but is not actively campaigning for its passage.

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