Judging from some comments on an earlier Complete Colorado column, at least some ColoradoCare supporters are confused about the Amendment 69 tax increases. They think that the Amendment raises payroll taxes but not income taxes.
They are wrong.
Section 9(3), part c, of Amendment 69 says that the Colorado Department of Revenue shall collect “ten percent of all non-payroll income from all beneficiaries.”
According to the definitions in Section 2 of the Amendment, a beneficiary is anyone who has a primary residence in Colorado. Non-payroll income is defined as “total income from all sources specified on lines 8-10, 12 through 18, and 20 through 21 of the Internal Revenue Service Form 1040.”
Internal Revenue Service Form 1040 is known as the federal individual income tax return. The lines listed in the Amendment are all in the section of the 1040 in which taxpayers state their income. Line 7, the only line in the section that is used to list income which Amendment 69 excludes from non-payroll income, is the line on which income from wages, salaries, and tips is specified.
Section 9(3)(c) therefore imposes an additional 10 percent income tax on all income other than income from wages, salaries, and tips. The current Colorado income tax rates is 4.63 percent. Adding ten percent to 4.63 percent yields an overall state income tax rate of 14.63 percent on non-payroll income. Non-payroll income was about 30 percent of the total gross income reported to the IRS in 2013.
Line 7 is not included in Amendment 69 because the Amendment taxes wages, salaries, and tips separately in Section 9(2), parts a and b. The two sections require that the Colorado Department of Revenue collect an amount equal to 6.67 percent of total payroll from employers and 3.33 percent of payroll income from each employee. By taxing wage, salary, and tip income separately, Amendment 69 ensures that ColoradoCare taxes reaches part-time workers and others who make too little to file federal income tax forms.
ColoradoCare supporters want people to believe that employers pay 6.67 percent of the new payroll tax while employees only pay 3.33 percent. More sensible people know that all payroll taxes fall on employees and that 3.33 percent plus 6.67 percent adds up to a 10 percent tax on wage income. If an employer has hand state tax authorities an additional amount equal to 6.67 percent of payroll, his cost of labor has just gone up. If the cost of something goes up, producers use less of it. Employees pay either by losing their jobs, working fewer hours as employers economize on labor, or losing fringe benefits.
Perhaps ColoradoCare supporters were confused by the title of Section 9. It refers to “Funding of ColoradoCare–collection of premiums.” The language of the Amendment even refers to “premium taxes” throughout. In English, the word premium in this context would generally refer to consideration paid for a contract of insurance. Contrary to what its supporters seem to believe, ColoradoCare is not health insurance. Section 9(3) of Amendment 69 specifically says that “payment of the premium tax does not constitute the purchase of a health insurance policy by an employer or taxpayer.”
If the people who wrote Amendment 69 were trying to disguise its true intent and mislead voters by misusing common English words, the confusion of its supporters over its tax provisions seems to suggest that they have succeeded.
Linda Gorman is Director of the Health Care Policy Center at the Independence Institute, a free market think tank in Denver.