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Caldara: Energize the economy with a lower state income tax

Coronavirus has crippled our state. Colorado needs to get moving again. Desperately.

We must energize our economy. And in order to do that people need to be able to use more of their own money.

It’s time to lower taxes. The state legislature could do it. But they won’t. So, we will do it for them.

This week we started a petition drive for a big idea in the form of a little tax cut. State Sen. Jerry Sonnenberg and I want to bring to the voters a flat income tax rate reduction this fall.

Oddly, this could stand in stark contrast to another citizen’s initiative working its way to your ballot — a massive tax increase that would also end Colorado’s successful flat income tax and replace it with a progressive one.

Colorado used to have a progressive income tax where people and companies would pay a higher tax rate the more money they earned. Thanks to the Independence Institute (long before I got there) and the work of our economist Barry Poulson, the legislature was convinced to switch from the progressive tax to a flat one in the mid-1980s.

Poulson urged that the new tax rate be 4.5% so that it would bring in the same amount of revenue as the system it was replacing. Let me say that again, a flat tax rate that would have been revenue neutral was 4.5%. So, of course, the legislature set the new rate at 5% to create a fine windfall, which it did.

Even so, the flat income tax did what it was predicted to do. It lit the engine of Colorado’s economy. When productive people and their companies are looking to locate, they are attracted to states with low and stable tax policy.

The flat tax began the Colorado boom.

That boom resulted in massive tax receipts to the state. So much so that the legislature quickly felt the growing pressure of a tax rebellion. They passed the Arveschoug-Bird Amendment to limit spending to 6% yearly growth. But that didn’t quell the anger over how much money the state was raking in. So, we then passed the Taxpayer’s Bill of Rights (TABOR) in 1992.

The combination of our flat tax and TABOR attracted more and more businesses and jobs to Colorado. So much so that in the late 1990s the state had to refund some $3.2 billion of surplus tax revenue to taxpayers.

Under Gov. Bill Owens the legislature in the 2000s lowered our flat tax to the current 4.63%.

The combination of our flat-rate income tax and TABOR has made for a sustainable gold rush which has turned Colorado into one of the most economically vibrant states in the country with one of the lowest unemployment rates.

We need to keep that gold rush going to keep public and private coffers filled. Our proposal drops the flat income tax rate to 4.55%

One need only look to New York and now California to see what a progressive tax structure does. Businesses and people flee.

Where are employers going? Low-tax states, Texas, Florida, even Wyoming. These states have NO income tax at all. That’s whom we are competing with.

No wonder as candidate for governor Jared Polis said he wanted to lower the flat income tax rate. I’m happy to help him do just that.

It is easy to play the politics of envy and want to tax those evil rich people more, damn them. What I have never understood is while everyone loves jobs, so many people despise the people who create them.

The proponents of this fall’s progressive tax increase will bill it as a “middle class tax cut.” Well, ours is a middle-class tax cut too. Actually, ours lowers taxes for the middle class more than theirs.

I’ll be happy to share a ballot with them to give voters a real choice.

Question is which one is actually the tax cut? Hint: Not the ballot question that starts “Shall taxes be raised $2,000,000,000 annually.”

Jon Caldara is president of the Independence Institute, a free market think tank in Denver.

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