Colorado Groups Push for Tax Hike on Higher Earners to Help With Budget Shortfall

Dozens of advocacy groups in Colorado are urging state lawmakers to temporarily adopt an emergency income tax increase on households earning over $250,000 to help offset the blow that the coronavirus is dealing to the state’s budget.

Colorado is facing a sizable revenue shortfall estimated to be about $3.3 billion headed into the upcoming fiscal year. The state legislature is now temporarily adjourned due to the virus, but is set to reconvene next Tuesday. 

Many other states and localities across the country are confronting similar financial predicaments, as the disease outbreak drags down the economy and tax revenues. At the same time, government response efforts are forcing them to cover unanticipated costs.

"History tells us that drastic budget cuts will only further delay the economic recovery of the state," said Tiffani Lennon, executive director of the Colorado Center on Law and Policy, one of the groups that is leading-up the effort behind the tax proposal.

"For those Coloradans that are privileged to have earned $250,000 or more a year, those folks, this is their opportunity to give back, this is their opportunity to help stem this crisis," she added.

The income tax proposal calls for reducing Colorado’s “flat” personal income tax rate of 4.63% to 4.58% for the first $250,000 of annual income. Above that earnings threshold, there would be tiered rates: 7% for income between $250,000 and $500,000; 7.7% for income between $500,000 and $1 million; and 8.9% for income over $1 million.

This tax increase would raise $700 million to $750 million, according to proponents of the plan. It would last only from June until November, but in Colorado a unique limitation in the state constitution means that even a temporary tax hike would involve lawmakers relying on emergency authority to raise taxes.

The proposal promises to be controversial and comes in an election year. While Colorado has leaned increasingly Democratic in recent years, the state has also seen voters reject ballot measures that would have granted the state additional power to raise tax revenues.

“There are some folks that feel like it's possible to get there and there are some folks that feel like it's not going to happen,” Lennon said. “It just wouldn't be responsible if we didn't at least have this conversation and discuss this as a viable option.”

She added that recent polling has shown that Colorado voters would be supportive of increasing taxes on higher earners.

To gain approval, the income tax proposal the groups are floating would require support from at least two-thirds of both chambers of the legislature. Democrats control both chambers, but are shy of a two-thirds majority in the House and well short in the Senate.

Colorado is unusual in that it has what’s known as the Taxpayer's Bill of Rights, or “TABOR,” which requires the state to seek approval from voters before raising tax rates. 

TABOR also effectively caps how much tax revenue the state can keep from existing taxes it collects, adjusting this level annually based on a formula that factors in inflation and population growth. To retain revenues above these levels, the state also needs approval from voters.

But a never-before-used provision in state law enables lawmakers to circumvent the standard TABOR restrictions and pass a tax increase without voter approval during emergency events.

The Colorado Education Association is among the other groups that support the idea of the legislature going this route. 

Amie Baca-Oehlert, the association’s president, said during a call with reporters on Monday that K-12 school funding in the state has not recovered from the last recession. She said that per-pupil spending is low compared to other states, that there are teacher shortages, and that over half of the state’s school districts had already switched to four day school weeks.

“There really is no room for further cuts,” she said.

At least 135 organizations have thrown their weight behind the income tax plan.

These include labor unions, like the American Federation of Teachers and Service Employees International Union and local left-leaning think tanks that have pushed to dial back TABOR restrictions in the past.

A range of other groups are backing the proposal, such as the Colorado Association of Local Public Health Officials, Colorado Association of School Boards, the Boulder County Board of Commissioners, and other organizations that advocate on behalf of people with disabilities, and those that are involved in issues like housing and homelessness.

The groups pushing for the tax increase say that overall they support a three-pronged approach to addressing the state’s budget gap and avoiding cuts. This would include relying on the tax hike, spending budget reserves and using whatever federal aid flows to Colorado. 

Supporters say they’re still trying to find the right lawmakers who will be willing to champion their plan in the legislature.

An additional twist with Colorado’s current state budget situation is that a Constitutional amendment adopted in 1982 could trigger a large property tax cut at the same time the virus has put a damper on other streams of revenue.

The chair and vice chair of the Colorado General Assembly's Joint Budget Committee were not immediately available on Monday to comment on the plan. Democratic Gov. Jared Polis’s office did not respond to a request for comment. And the Denver-based Independence Institute, which has been critical of proposals to relax TABOR restrictions, also didn’t immediately weigh in.

Colorado voters in 2018 rejected a ballot measure that aimed to raise new school funding by imposing a bracketed income tax structure, raising rates in four tiers to levels between 5% and 8.25% for people earning above $150,000 annually.