Editor’s Note: This week Ark Valley Voice will go through each 2020 ballot question, covering the pros and cons of each. All 2020 Ballot question coverage will be filed under the AVV In-depth category “Elections”.
Proposition 116 proposes to adjust the Colorado state income tax rate. It’s wording: Should Colorado voters decrease the state income tax rate from 4.63 percent to 4.55 percent?
This proposal is an initiated amendment to the Colorado Revised Statutes to decrease the state income tax rate from 4.63 percent to 4.55 percent for all taxpayers on federal taxable income.
Background:
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The change from a progressive tax system to a flat five percent income tax for all taxpayers went into effect in the mid-1980s. The new income tax system resulted in large tax receipts for the state. These were diverted to Colorado taxpayers in the form of refunds through an initiated constitutional amendment called TABOR (the Taxpayers Bill of Rights), approved by Colorado voters in 1992.
Then in the 2000’s, the tax rate was lowered again, to 4.63 percent by the legislature.
Any change in the TABOR amendment or any new tax levied by Colorado governments currently must be approved by a vote of the people. State income tax collections are the main source of General Fund revenue, which is the primary source for financing state government operations. Currently, most of the money in the General Fund is spent on health care, education, human services, and other state programs.
Pro:
Proponents of Proposition 116 say it reduces income taxes modestly (an average of $37) for each Colorado taxpayers while expanding the economy and thereby creating jobs. With so many struggling financially from the hardships of the COVID-19 pandemic, they say that Coloradans need to keep more of their hard-earned money and that small businesses need relief from their tax burden.
In addition, as the economy began improving after the 2009-2010 great recession, state revenue has risen every year for the past decade.
The proposal would decrease state revenues by less than 0.5 percent of this year’s budget. Supporters of Prop. 116 say the last time Colorado made a modest reduction to its income tax rate, the state’s economy expanded. Income tax revenues actually increased by more than double the rate of inflation. In their view, private enterprise, not more government spending, drives job creation and economic growth, which Coloradans need more than ever.
“Small business owners all over Colorado are feeling the pain of these shutdowns, and their incomes have suffered as a result,” says State Senator and sponsor Jerry Sonnenberg (Republican, District 1 in northeast Colorado). “In many rural communities, there are no big-box stores, just small businesses. An across the board income tax rate reduction will allow these business owners and their employees to keep and spend more of their own money. State government doesn’t need to increase its already bloated budget.”
Jon Caldara, president of the Independence Institute and initiative sponsor, said, “Coronavirus has crippled our state. Colorado needs to get moving again. Desperately. We must energize our economy. And in order to do that people need to be able to use more of their own money. It’s time to lower taxes. The state legislature could do it. But they won’t. So, we will do it for them.”
Con:
Opponents of Prop 116 say that few taxpayers would benefit substantially from the proposed cut in taxes, and for most Coloradans, the funds lost in public investment greatly outweigh the tax break they would receive.
Nor does the measure provide targeted relief for those who need it most. Twenty-five percent of Coloradans – those who work at low wages or have seen layoffs, for example – and have no tax liability after deductions, wouldn’t see any benefits from Proposition 116.
A taxpayer receiving a take-home income of $50,000 a year would see a scant $40 in benefit. Those Coloradans earning $1 million (fewer than 1 percent of us) would get about $800, and a large corporation would benefit the most: roughly $10,000. In other words, the benefits of Prop. 116 are tilted toward the wealthy.
The measure is estimated to cost Colorado more than $400 million in state income in the first three years and up to $180 million a year afterward. According to the Bell Policy Center, Proposition 116 would cause a $2 billion decline in the state budget over a decade.
The fact is that Colorado does not have “a “bloated budget,” During the good years of economic growth, TABOR required that the state return any excess funds over the budget back to state taxpayers. Tax revenue declines, using Colorado schools as an example, are already struggling for funds – exacerbated by the increased costs and uncertainties of COVID-19. This additional revenue decline could do futher damage and public schools cannot afford to take another financial hit.
In addition, opponents say that affordable healthcare, roads, child care, and other state services are also in the crosshairs of significant budget cuts. At the same time, the state would have fewer funds for projects such as COVID-19 recovery and affordable housing. At a time when additional aid is needed, passing Prop. 116 would reduce funds to aid Coloradans. In addition, reducing the budget due to this tax cut, while the state is going through the COVID-19 crisis could lead to layoffs and reductions of critical state services that would further damage Colorado’s economy and quality of life.
According to Fair Tax Colorado, “Colorado already cut $3.3 billion from our budget this year. This 25 percent total cut has been devastating for hundreds of thousands of Coloradans. Prop 116 would demand another $154 million cut from our budget. The majority of Prop 116’s benefits ($90 million) would go to the top 3 percent of Coloradans earners.”
“For example,” continues their written statement, someone making $1 million will receive $800, while average Colorado taxpayers will only see $37 in tax savings. How much will Prop 116 cost us? The decrease in revenue is equivalent to sending 18,160 children to school for a year or the cost of the Senior Homestead and Disabled Veteran Property Tax Exemption, [ which is] a lifeline for more than 250,000 older and disabled Coloradans.”
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