Among the many bills crammed through the General Assembly in the final days of the 2021 Colorado legislative session, House Bill 21-1312 increases state revenues by over $140 million annually by modifying or repealing several existing tax benefits.
Without an accompanying tax reduction, the bill contradicts the revenue neutral tax reform promised by Governor Polis.
In a December 2019 op-ed for the Colorado Sun, Governor Polis reaffirmed his position on taxes, saying, “Last year I called for a revenue neutral tax reform proposal that would have eliminated deductions and loopholes that benefit special interests in order to cut taxes for all.”
In tax parlance, this type of reform is known as “broadening the base and lowering the rate.” Eliminating loopholes and deductions while cutting rates generally improves the tax code by increasing simplicity and transparency. Such reforms can also help prevent the government from using the tax code to pick winners and losers in the economy.
In the governor’s words, a broad-based, lower-rate tax code “leads to greater economic growth with the ancillary benefit of preventing the corrosive influence of crony capitalism.”
In 2020, he began working towards these reforms. After the legislature passed HB 20-1420, eliminating certain tax benefits for higher earners—and after federal base-broadening reforms—Polis supported Proposition 116, a 0.08 percent income tax rate reduction. With the governor’s endorsement, the measure passed, partially offsetting the effective tax increases.
This year, the legislature passed HB 1312, which broadens the tax base by gradually eliminating deductions for the coal mining industry, eliminating vendor fees for large retailers, and adding digital goods to taxable “tangible personal property”, among other provisions.
Proposition 116 decreased taxes by $170 million, according to Senate Legislative Counsel estimates. Based on those numbers, to make HB 1312 revenue neutral the income tax rate would need to drop to approximately 4.49%.
Unfortunately, the bill only includes provisions which increase taxes. Without any offsetting tax cuts, taxpayers should rightfully wonder if this bill is simply a money grab.
In fact, bills passed during the 2021 legislative session will increase net revenue for the state by around $400 million in FY 2022-23. So far, neither Governor Polis nor the legislature have announced any plan to offset those increases with tax cuts to make the reforms revenue neutral.
When asked why the legislature would increase taxes at a time when the state is flush with funds, Representative Emily Sirota, one of the bill’s prime sponsors, claimed that they are simply “modernizing the tax code.” But if taking more of Coloradans’ hard-earned money—without their consent and without an offsetting rate reduction—is modern, then maybe we’d all be better off in the stone age.
Rather than aligning himself with Rep. Sirota’s money-hungry agenda, Governor Polis should keep his commitment to voters for revenue neutral tax reform. He can do that by either vetoing HB 1312—along with several others—or supporting income tax cuts.
Cade Petrie attends Westmont College and is currently part of the Future Leaders program at the Independence Institute, a free market think tank in Denver.
