Proposition 116: State Income Tax Rate Reduction, Explained

October 12, 2020

Proposition 116 would reduce Colorado’s flat income tax rate from 4.63 percent to 4.55 percent. Several conservative groups support the proposal, which originated as a response to a different tax idea from the left, that would have raised taxes for the highest earners. Progressive groups failed to gather enough signatures to put their measure on the ballot, while Prop 116 supporters stayed the course

A simple majority vote is required for the proposition to pass. 

Colorado taxpayers pay the same tax rate regardless of income. For the last 20 years, the rate has been flat at 4.63 percent. This proposal keeps the rate flat but lowers the rate for everyone, individuals and corporations. A taxpayer with $50,000 in taxable income would save $40 per year, and $1 million in taxable income would result in an $800 state income tax cut.

Income taxes are the main source of funding for the state’s general fund. If passed, Colorado expects to see a 1.2 percent cut in the 2021-22 budget year, which works out to around $150 million. The immediate impact in the current government fiscal year would be an estimated $200 million.

Supporters say allowing taxpayers to keep more of their earnings would promote spending, business investment and employment. They note that state government spending grows each year and say the money would be better spent to help struggling families. 

Opponents say a cut in state government income would reduce critical services, and hurt Colorado’s economy and the quality of life. Colorado has already taken a deep budget hit as a result of the coronavirus pandemic, with significant cuts made to education, transportation and health care. Opponents note that most of the tax savings from Prop 116, should it pass, would benefit wealthy individuals and corporations.

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