The nearly $1 billion personal income tax hike known as Amendment 66 would not only burden Colorado’s economy for the next three decades by killing jobs–as a recent study from the University of Colorado reported–but could also send those jobs to neighboring states as the increase make the job and business environment more attractive elsewhere.
Amendment 66’s education tax increase would raise Coloradans’ income tax from 4.63% to a two-tiered rate, with the first $75,000 of income taxed at 5 percent and income in excess of $75,000 taxed at 5.9 percent.
Efforts outside the Centennial state have demonstrated a strong push in the opposite direction of Amendment 66’s personal income tax rate hike.
Nebraska, for example, passed a $97 million tax relief bill in 2012 aimed at cutting the lowest income tax brackets in 2013, with additional tax bracket cuts added in 2014. Currently, Nebraska’s top rate is 6.84 percent, with lower tiers at 5.01 percent and below. Additional cuts to corporate income tax rates and the elimination of inheritance taxes were planned, but ultimately shelved.
That same year Kansas lowered the rate for the state’s top individual earners from 6.45 percent to 4.9 percent beginning in 2013, along with eliminating some income taxes for small businesses. Kansas Gov. Sam Brownback would eventually like to phase out the state’s income tax entirely.
Oklahoma followed suit earlier this year, paring the state’s top income tax rate from 5.25 percent to 5 percent in 2015, with possible further reduction in 2016.
Oklahoma Gov. Mary Fallin had earlier praised Kansas’ efforts for its effects on the state economy. “Oklahoma needs to compete with our neighbors,” she said. “To do that, we need to lower our income tax.”
In 2007, former Utah Governor Jon Huntsman slashed personal income taxes along with enacting other tax cuts, reducing the top marginal income tax from 6.98% percent to a single rate, a flat 5 percent.
These measures have contributed to an overall sense that Utah’s tax policies have increased the state’s position as “business-friendly,” according to the Tax Foundation.
Arizona, too, has looked to cuts in the state’s corporate tax rate and a possible income tax adjustment as a way of increasing the state’s attractiveness to businesses–and, ultimately, jobs. Arizona’s top income tax rate is currently 4.54 percent.
While not tackling the subject of income taxes directly, New Mexico has cut its state corporate income tax rate from 7.6 percent to 5.9 percent. New Mexico’s current top state income tax rate stands at 4.9 percent.
Then there is Wyoming, which has no personal income taxes at all. Neither do Texas, Nevada, or South Dakota.
Raising Colorado’s rates would position the state as not only one of the highest among neighboring states, but among the highest in all states between the Midwest and California. Only Idaho, Montana, and Nebraska would have higher top income tax rates. However, Colorado would possess the highest rate for the lower income tax brackets, as each of those states offer lower rates at lower income levels than the 5 percent rate covering the earner’s first $75,000 in income.
The Independence Institute’s analysis of Amendment 66 provides additional insight. “A brief study of the rates for Colorado and neighboring states makes it clear that the 27 percent increase in Colorado’s top marginal income tax rate will boost the state’s top effective marginal rates above those in neighboring states. With the exception of California all neighboring states would have lower top marginal rates if Colorado voters adopt Amendment 66.”
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