If the fight over Colorado tax policy were a sporting event, half the stadium would be empty.
With the November defeat of Proposition CC, fiscal conservatives have taken the field, and a contest over the Taxpayer’s Bill of Rights feels like a foregone conclusion.
But to Democrats and aligned interest groups, policy losses such as tax hikes for schools, roads and higher education just mean they haven’t found the right game plan.
“What I took away from Prop CC was that was not the solution,” said Carol Hedges of the Colorado Fiscal Institute, a liberal tax policy group. “That solution didn’t address the concerns of the folks who voted in that election, and we have an obligation to solve these problems.”
So a month after voters defeated the measure to eliminate the state’s spending cap, Hedges’ organization is playing offense and has introduced an eye-popping 35 tax-related ballot initiatives for 2020. The specifics vary proposal to proposal, but one theme unites them: creating a tax code that requires the wealthy to pay more to fund public services.
Some of the preliminary ballot measures filed with the legislative council would do so through a progressive or graduated income tax, which imposes escalating tax rates on those with higher incomes. The system would work like federal tax brackets and how Colorado operated from 1937 through 1986 before the state moved to a flat tax.
Several other measures would impose an alternative minimum tax on corporations, designed to limit tax breaks for businesses. Others would relax TABOR’s election requirements to allow lawmakers to raise taxes without voter approval in some cases.
On Dec. 30, a hearing will set legal guidelines for the proposals.
“They’re all coming from the place of recognizing that our tax code, our tax system, is really broken and needs to be rebuilt,” Hedges said.
Fiscal conservatives have a simple response: “Bring it on,” said Jon Caldara, president of the Independence Institute, a think tank.
An effort on multiple tax frontsThis isn’t the institute’s first foray into the initiative process. Last year, Hedges’ group proposed 18 ideas to rewrite TABOR and two other constitutional fiscal provisions. Their goal: figure out what they could legally get onto the ballot under the single subject rule, which requires legislation and ballot measures to fit under the umbrella of a single topic.
Many were rejected by the Title Board, which enforces state elections law. A few were OK’d, but then withdrawn. The biggest one – an all-out repeal of TABOR – was given the go-ahead with a Colorado Supreme Court ruling in June but is pending action.
“These 35 represent various options that we think can get titled under single subject,” Hedges said.
A ‘fair and just tax system’The new fiscal proposals consist of a few major policy ideas that are mixed and matched into 35 arrangements.
The most common option is a paragraph that would declare that “taxpayers are entitled to a fair and just tax system.” It asks that everyone should pay similar percentages of their income in taxes – the more money you make, the less you pay in taxes as a share of your income.
In 2015, the last year data was available, the lowest income group paid 17% of its income in combined state and local taxes, according to Colorado’s tax profile report. The wealthiest group paid an average of 7% of its income, the least of any income bracket.
Sales taxes tend to fall more heavily on lower income groups, who spend a greater share of their disposable income on goods than those who are better off financially. Most other states offset this burden somewhat by charging wealthier people higher income tax rates, but Colorado charges a flat rate of 4.63% regardless of income.
One proposal would insert the “fair and just” language into the Colorado Constitution and leave it to lawmakers to decide how to achieve it. That could theoretically lead to higher taxes on the rich, or it could be accomplished by lawmakers cutting taxes at lower income levels, perhaps through targeted tax breaks for households that make less than a certain amount.
Most of the proposals, though, would require the General Assembly to come up with graduated income tax brackets or adopt one as prescribed by the ballot measure. The brackets proposed in the preliminary initiatives would raise taxes on joint filers making more than $250,000 or individuals making more than $187,500. They would also install a top tax rate of 9.85% on any taxable income above $1 million.
Much like federal income brackets, a taxpayer who moves into a higher bracket may not pay a higher tax rate. For example, a taxpayer in the proposed $250,000 to $500,000 bracket would pay 4.63% on the first $250,000 and 7.25% on the rest.
Another plan would create an alternative minimum tax, requiring corporations to pay taxes even if they otherwise reduce their bill to zero through tax breaks. The federal AMT was eliminated under President Donald Trump’s 2017 tax package, and only five states collect a corporate AMT, according to the right-leaning Tax Foundation.
Finally, a handful of the proposals would target core TABOR provision: voter approval of new taxes. One would create exceptions that allow lawmakers to raise taxes on the wealthiest 10% of Coloradans without a public vote.
Another would allow state and local officials to raise taxes without seeking permission in a year that tax collections fall by 10% from the prior year’s spending.
An uphill climbWhichever initiative moves forward, allies’ political fortunes likely rest on two things. To win, supporters need a 2020 electorate that looks more liberal than the low-turnout 2019 election. And they need their message to break through the partisan din of a presidential election year and overcome Colorado’s aversion to increasing taxes.
National and state polling suggests higher taxes on the rich are popular. But statewide tax hikes in Colorado have been a hard sell. And some of the Colorado Fiscal Institute’s proposals would require adding language to the Colorado Constitution, a feat that requires a supermajority vote of 55% in Colorado. Deleting language, such as the TABOR prohibition on graduated tax rates, can be done with a simple majority.)
For conservatives, the 35 new proposals aren’t fundamentally different from the failed tax hikes and TABOR changes that have been tried before.
“The people have soundly rejected this over and over again,” said Caldara, adding that the outcome won’t change with a different game plan.
“Wishing it don’t make it so,” he said.