In 2009, the Democrats controlling Colorado state government wanted more money. Among other things, they wanted to expand Medicaid. They needed to increase state revenues. Their problem was that the Colorado Constitution requires a vote on new state taxes and the U.S. was in the depths of a severe economic downturn.
State officials knew that a new tax would never be approved by a popular vote. To get around both the letter and the spirit of their constitutional duty, they simply labeled the provider tax a “fee” and imposed it. Fees do not require a vote.
Today that tax badly disguised as a fee is raising $688 million in additional revenues that is counted towards the total amount of tax revenue that the state is allowed to keep under Colorado’s Taxpayer Bill of Rights (TABOR).
Now a new set of Democrats wants to collect even more money by moving that revenue off budget. Having gotten away with the claim that the provider tax is a fee, they now want to call the process of collecting it a “business enterprise.” This would remove the tax revenues from the state budget and allow the state to keep an additional $688 million a year in other tax revenues.
For the record, here is the letter from the Centers for Medicaid and Medicare Services approving the “tax.” The letter says that Colorado’s statute “implementing the proposed hospital tax and the review of Colorado’s methodology for increasing Medicaid reimbursement to hospitals, it appears that no direct correlation exits between the tax and associated increases in Medicaid reimbursement.” No matter what the state says the rest of the world, including the federal government, knows a tax when it sees one.
Perhaps someday even the Colorado courts will agree that words mean things and that a fee that looks like a tax and acts like a tax is actually a tax. If they don’t, the distinction between a tax and a fee will cease to exist, and the legislature will be able to impose new taxes fees without limit.
Linda Gorman directs the health care policy center at the Independence Institute, a free market think tank in Denver.