Another income tax cut for Colorado in 2022? Maybe — and it could cost the state budget $400 million

Hart Van Denburg/CPR News
Colorado State Capitol, Tuesday, Nov. 24, 2020.

Colorado voters will have a chance to lower the state’s income tax rate once again in the 2022 elections. State officials confirmed on Thursday that conservative organizers had secured enough valid signatures to put the item on the statewide ballot.

The proposal would cut the income tax rate from 4.55% to 4.4%. That’s equivalent to a $75 drop for someone making $50,000 a year.

Jon Caldara, one of the campaign’s organizers, said that the tax cut would make Colorado more competitive with other states.

“We need to keep business here. We don’t want to turn into California, where our most productive people and businesses are fleeing for lower-tax states,” he said.

He also argued that an income tax cut would counteract the new fees lawmakers created during the last legislative session. 

In all, the cut could result in the state collecting about $400 million less income taxes during the next budget year, according to current forecasts. Caldara argued that the state government can afford that cut because it is “awash” in money right now.

Colorado still has a lot of COVID-19 money — but it's temporary

Indeed, the state budget has benefited from billions in COVID-19 relief funds and a stronger-than-expected economic rebound. The state is already expected to exceed the legal limit on its revenues in coming years, which means that some of those sales-tax dollars may have to be refunded to voters anyway. 

“So this is not going to cost anybody anything,” Caldara claimed.

But that argument conceals the long-term truth about tax cuts, said Scott Wasserman, president of the progressive Bell Policy Center.

“It will have far-reaching consequences. This tax cut is both dumb and permanent,” Wasserman said. 

For now, a lower tax rate may just mean the government has to refund less money to taxpayers. But, according to Wasserman, when the state runs short of revenues in the future, those losses will hurt. 

“When we hit the first recession, we’ll be taking in less money,” he said. “This will impact K-12 education, health and human services, correction, higher education, public safety, you name it.”

The proposed cut is “dumb,” he added, because it continues the state’s flat income tax, which means that it delivers more savings to wealthier people.

The state cut income tax in 2020

Colorado voters approved a similar — but smaller — tax cut in 2020, even as they elected liberal candidates across the state. That cut reduced the rate from 4.63% to 4.55%. Separately, the TABOR limit has resulted in a temporary lowering of the tax rate to 4.5%.

At the time, Gov. Jared Polis said that he would support further tax cuts, but wanted to see them balanced out “by eliminating tax loopholes and tax expenditures, to make sure that there's no revenue loss to the state by reducing the income tax level.”

Asked for comment on Thursday, spokesperson Conor Cahill said that Polis hadn’t taken any positions on the 2022 ballot.

“The people of the state have the right to petition issues onto the ballot. The people of the state of Colorado will be deciding on this issue in November of 2022.”

Conservative organizers also are pushing to put sales-tax reductions on the ballot.