DENVER–Backers of a proposed citizens’ initiative to cut Colorado’s state income tax have begun gathering signatures to place it on the ballot in the 2022 general election. The measure permanently lowers income tax rates, but it may decrease Coloradans’ tax refunds in the short term.
If approved by voters, Initiative 31 would reduce Colorado’s flat income tax rate on individuals and corporations from 4.55% to 4.40%, starting in 2022. Fiscal analysts at the state’s Legislative Council project that the average individual would save $95 in reduced income taxes in 2022, while the average married couple would save $180.
State Senator Jerry Sonnenberg (R-Sterling) and Jon Caldara, president of the Denver-based Independence Institute* are sponsoring the proposed tax cut. Sonnenberg and Caldara also placed Proposition 116 on the ballot in the 2020 election, which won voter approval and reduced the income tax rate from 4.63% to 4.55%.
To get Initiative 31 on the 2022 ballot, the sponsors must obtain 124,632 signatures from registered Colorado voters by this October.
Ben Murrey, director of the Independence Institute’s Fiscal Policy Center, believes voters should back the proposal to counter tax and fee increases enacted by Colorado lawmakers earlier this year.
“If adopted, the measure will send a strong message to elected officials that if they continue to raise taxes without consent, we the people will simply take it back via the ballot,” Murrey said.
However, Initiative 31’s impact on the state budget is uncertain because it would also affect tax refunds distributed under the Taxpayer’s Bill of Rights (TABOR).
Under TABOR, a portion of state revenues cannot exceed a limit which grows annually based on population growth and inflation. The state is expected to collect more than that limit for the next several years, triggering a refund of the difference to taxpayers.
Governor Jared Polis has speculated that this year’s refunds could range from $30 to $120 per taxpayer.
By decreasing the amount of taxes collected each year, Initiative 31 would shrink the gap between actual state revenue and the TABOR revenue cap, according to the Legislative Council. That means taxpayers would save by paying lower taxes in Fiscal Year (FY) 2022-23 but also receive a smaller refund the following year.
Meanwhile, the state’s budget would be unaffected by Initiative 31 in FY 2022-23. Revenues would decrease, but likely not by enough to put the state under the TABOR limit.
Murrey disagrees with this fiscal scorekeeping. “A plain reading of TABOR,” he says, “suggests that the TABOR cap should be adjusted downward for voter-approved revenue decreases.” A cap reduction would make it more likely for voters to receive TABOR refunds.
The text of TABOR states that the fiscal caps it imposes shall be “adjusted for revenue changes approved by voters.”
Based on that language, Murrey also believes the state should have lowered the TABOR revenue limits when Proposition 116 cut taxes last year.
“TABOR revenue fell, but the TABOR cap remained untouched by the tax change.”
*Independence Institute is the non-profit publisher of Complete Colorado.
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