Since 1992, Coloradans have grown accustomed to the legislature asking voters’ permission before they increase taxes. This year, the legislature passed forty-five revenue-raising bills that together will generate upwards of $600 million in new taxes and fees annually—all without voter consent.
The Denver Post put it best: “The Taxpayer’s Bill of Rights restricts lawmakers’ ability to raise money, and this session was full of examples of Democrats trying to creatively overcome TABOR.”
And overcome TABOR they did.
A frenzy of tax and fee increases
Senate Bill 21-260 will generate nearly $4 billion in new taxes over the next decade. They evaded the constitution’s voter-approval requirement by calling these new taxes “fees.”
If the legislature wanted to increase the gas tax from the current $0.22 per gallon to $0.30, for example, they would need to ask voters for consent. But if they want to tack an $0.08 per gallon gas fee on top of the existing gas tax, bringing total government revenue to $0.30 per gallon, that does not require voter approval. Go figure!
The so-called “Tax Fairness for Coloradans” package, consisting of HB 21-1311 and 21-1312, will increase taxes by a combined total of $372 million in FY 2022-23, according to Legislative Council Staff (LCS) estimates. You won’t see these on the ballot in November either.
Advocates of the bills argue that they close unfair tax loopholes. According to one of the bill authors, Democrat Representative Emily Sirota, they are simply “modernizing the tax code.” To get the legislation passed, however, legislators exploited a loophole of their own.
Hang in there for the twisted logic on this one.
TABOR requires “voter approval in advance for [any] tax policy change directly causing a net tax revenue gain.” That sounds pretty straightforward, right? Not after Colorado’s activist Supreme Court gets its greedy hands on it. In their wisdom, the court has decided that if legislators claim they are taking away tax benefits to promote administrative simplicity, such changes, in spite of causing a net tax revenue gain, do not constitute a net revenue gain.
Yes. Seriously.
In other words, if the legislature wanted to generate $100 million per year in new tax revenue by increasing the income tax rate, they would need to put the change on the ballot. But, if they increased annual revenue by the same amount by taxing income previously exempt from taxation, that would not require voter approval.
Ironically, HB 1311 does not even simplify the tax code. It takes tax benefits away from some people and uses those revenue gains to award new tax benefits to others. It generates $270 million for the state by the former but immediately spends $213 million of that on the latter.
This is a common theme with many of the revenue bills passed this session. They increase revenue and spend some or all of that in the same bill. LCS bases these figures in their fiscal note on the net revenue gain. Reading the topline figures thus indicates that the bills will generate between $391 and $415 million in FY 2022-23. While that’s no small figure, it only accounts for net gains. A closer look reveals that they create between $579 and $617 million in new revenue for the year.
House Bill 21-1105 will increase utility fees on 3.4 million electric and gas customers around the state. The first page of the fiscal note shows that the measure will generate between $12 and $14 million in annual revenue from those fees, and all of that will be spent on utility assistance programs for eligible residents.
Buried in the middle of the fiscal note is a brief mention that the fees could cost utility consumers up to $26.6 million annually. They do not need to ask residents’ permission to increase utility costs because they label these costs as “fees.”
Similarly, HB 21-1208 creates a new enterprise funded by fees on insurance companies “providing specific types of property and hazard insurance,” according to the fiscal note. The fees will generate over $4 million in new revenue per year. Do not be deceived. This is not a tax disguised as a “fee”on insurance companies but on homeowners. Expect homeowner’s insurance to go up.
Another bill will raise state revenue by nearly $30 million dollars next year through new vehicle registration fees. Senate Bill 21-154 will generate $12.6 million annually from the “surcharge imposed on phone service users and a charge on prepaid wireless phones,” according to SLC. And the list goes on.
Evading TABOR
All of these bills use either fees or other loopholes created by Progressive judges to avoid the voter consent requirement under TABOR. Despite the fact that Colorado voters passed Proposition 117 to prevent the legislature from using the fees loophole, Democrats in the legislature figured out how to circumvent that too.
It would be funny how much our Democrat-controlled legislature seems to hate democracy when it stands in the way of their agenda if it weren’t so serious for taxpayers.
Fortunately, Colorado has a governor who supports revenue neutral tax reform. In a December 2019 op-ed, Polis explained his vision for tax reform: “Last year I called for a revenue neutral tax reform…It is my hope that we can reduce the special interest tax subsidies that force all Coloradans to pay an artificially high income tax rate, and provide additional income tax relief to all individuals and businesses in Colorado.”
More than half of new revenue in this session’s legislation came from reducing existing tax benefits. I fully expect Governor Polis to come out in support of a substantial income tax decrease if he signs off on those increases.
Ben Murrey is fiscal policy director at the Independence Institute, a free market think tank in Denver.
