Colorado Tax Code Change on November Ballot

This November, Colorado voters will have a significant decision to make regarding the state tax code. The proposed change could affect individuals differently based on their income levels, which makes it quite a complex situation.

Amendment 87, if approved in the November 3 election, would replace the current flat income tax system with a graduated or progressive tax system. In essence, this means that higher income earners would face higher tax rates, which could lead to a notable increase in state tax revenue.

The majority of Coloradans might see their tax bills reduced by hundreds of dollars. Yet, it’s important to note that the state’s wealthiest individuals—the top 0.01%—could experience a near doubling of their tax liabilities.

Supporters of Amendment 87 argue that it aims to create a more equitable tax system, especially given the current landscape of wealth inequality. They emphasize that the additional funds generated would specifically support K-12 education, healthcare, and early childhood education. This means the revenue would be allocated exclusively to these areas, adding to existing funding rather than replacing it.

Plus, it’s significant that the extra funds generated from this tax wouldn’t count towards the Taxpayer’s Bill of Rights (TABOR) revenue growth limit. This detail implies that it would not lead to any refunds or affect future overcollection reimbursements.

On the flip side, critics contend that this amendment is essentially introducing a tax increase of over $2 billion, which could have widespread implications for Colorado’s economy. An analysis from the Cato Institute suggests that flat taxes correlate with higher individual incomes and overall economic growth. Their perspective leans towards the idea that such tax systems enable the market to shape spending behavior.

This debate certainly sets the stage for one of the most intense contests in the upcoming election.

Overview of Colorado Tax System Changes

For nearly four decades, Colorado has maintained a flat tax system where all eligible income is taxed at a uniform rate — currently set at 4.4%. Under Amendment 87, this flat rate would transition to a six-tier progressive system, taxing income above varying thresholds at progressively higher rates:

• The initial $25,000 earned would face a 3.7% tax rate.
• Income from $25,000 to $100,000 would be taxed at 4.2%.
• From $100,000 to $500,000, the tax rate is set at 4.4%.
• Income between $500,000 and $750,000 would see a 7.4% tax rate.
• Tax rates would increase to 7.9% for income from $750,000 to $1,000,000.
• Finally, any earnings exceeding $1,000,000 would be taxed at 8.4%.

For joint filers, the same tier system applies, supplemented by larger standard deductions compared to single filers. Businesses would also be taxed at the same rates on their profits.

Leadership in support of this amendment includes organizations like the Bell Policy Center and the Colorado Fiscal Institute, while opposing entities include Advance Colorado and various business and conservative groups, including Governor Jared Polis, who has frequently criticized the proposal.

Projected Tax Impact Based on Income Levels

For Earners Below $25,000

Close to a quarter of Colorado taxpayers, roughly 850,000 individuals, earn less than $25,000 annually. Data shows that those in this income bracket typically pay taxes on approximately $4,816. Currently, they face about $212 in state taxes, and Amendment 87 would reduce their liabilities by around $34.

For Middle-Income Earners

The median taxpayer in Colorado makes about $57,000 a year, with roughly $35,000 of that subjected to state income taxes. Their current tax payment is about $1,517, and under the new amendment, they could save nearly $200.

For Near Six-Figure Incomes

An individual earning $97,754 annually, ranking in the upper third of Colorado earners, generally reports around $66,000 taxable income. They currently pay around $2,900 in state taxes and would see a reduction of over $250 with Amendment 87.

For High Earners, Around $350,000

The top 5% of Colorado taxpayers see annual earnings of at least $335,000. Typically, they declare about $302,000 for state taxes. Their current burden is about $13,300, but with the proposed changes, they’d experience a cut exceeding $300.

For Those Earning Over $1 Million

This group constitutes the top 1% of Colorado taxpayers, who average around $1.33 million in income. Their current tax liability is usually about $57,000, but under Amendment 87, it would increase by approximately $28,000.

Impact on the Highest Earners