DENVER– In an election where Colorado voters went heavily Democrat on candidate races, they also said yes to a state income tax rate reduction, as well as assigned themselves final say over big new state fees at the ballot box.
Proposition 116 passed easily on Tuesday with a near 57-43 margin. Starting with tax year 2020, Colorado’s flat state income tax rate will be reduced from 4.63% to to 4.55%, a modest 0.08% across the board tax cut. The measure is the brainchild of Jon Caldara, president of the free market think tank Independence Institute and Jerry Sonnenberg, a Republican state senator from Colorado’s rural Eastern Plains.
According to Sonnenberg, the impetus for the rate reduction flows from changes to federal tax law in 2017 that made more income subject to taxation. While Congress lowered federal tax rates to offset the impact to taxpayers, Colorado kept its state tax rate steady at 4.63%, resulting in higher state tax bills and a revenue windfall for state government, all without voter approval. As Sonnenberg explains: “To fix this, I introduced legislation in the last two legislative sessions to decrease the income tax rate. Unfortunately, the bills never made it through the legislature.” So he and Caldara took it to the ballot instead.
“This tax cut will keep more money in taxpayers’ pockets to help us all recover from the economic fallout from forced shutdowns and other government mandates in response to COVID-19,” wrote Caldara in an email on election night. “Tonight’s victory was not just a tax cut,” continued Caldara. “It was the first time in 20 years that voters lowered our income tax rate, and it has signaled to everyone watching that Coloradans still support our flat tax and the Taxpayer’s Bill of Rights (TABOR).”
Indeed, an effort last year by the legislature to eliminate refunding of overcollected tax revenues under TABOR–Proposition CC–was handily rejected by voters.
Voters on Tuesday also signed off on Proposition 117. Moving forward, if state lawmakers want to create a new state enterprise that raises over $100 million in fees in the first five years, they’ll have to refer it to to the statewide ballot for voter approval.
Enterprises are self-sufficient government-owned entities that get no more than 10 percent of their funding through state taxes. The fee money they generate is exempt from the revenue limits under TABOR.
“Originally, enterprises were used properly to support things like our state university system, our state parks, and the state lottery. For example, you pay a fee for a state park pass if you want to use their services – it’s up to you,” wrote Lindsey Singer, one of the proponents of Prop 117, in a recent Complete Colorado opinion piece. “But more recently, the legislature and courts have expanded the definition of enterprises so much that it’s almost meaningless.”
According to a study this year by the Colorado-based Common Sense Institute: “In 2018, state enterprise fee revenues were more than double what they were in 2008 on a per-Coloradan basis as total revenue from enterprise fees has grown faster than general fund revenue.”
“When crafting this initiative, we were careful to only include new state enterprises,” continues Singer. “This means that localities will not be touched by this, and neither will existing enterprises. We simply want to stop legislators from this abuse of taxpayers in the future.”
Colorado voters already have the final say over new taxes or existing tax hikes via TABOR; the passage of Prop 117 adds big new state fees to the voter consent mix.
Both initiatives are statutory changes, meaning they can be amended by lawmakers in the future, as with any other state law, though to raise the state income tax rate would require a TABOR vote.