The following appeared in the Sunday edition of the Denver Post:
From an outside perspective, Colorado’s tax structure is on the money. The state continues to draw in residents and capital due to a competitive flat individual and corporate tax rate and the strongest Taxpayer Bill of Rights in the country. But residents of the Centennial State should be aware that activists are attempting to undo decades of economic progress with a ballot initiative that would raise $1.6 billion in taxes that would be ostensibly earmarked for higher teacher salaries. It is vital that voters reject Amendment 73 and its misguided tax hikes on thousands of taxpayers, small business owners, and entrepreneurs.
Proponents of Amendment 73 want to replace Colorado’s fair, flat tax system with a more complex system with five tax brackets of higher tax rates. Instead of a relatively low 4.63 percent tax rate, the measure would create a new system of graduated proposed rates, between 4.63 percent as the lowest rate all the way up to 8.25 percent for income above $500,000. For businesses that file as a C-corporation, taxes would increase to a flat 6 percent.
Should voters approve Amendment 73 and raise the top marginal tax rate by 78 percent, it would amount to the largest tax increase in state history and give Colorado a much higher rate than its neighbors. Such an action would run counter to the vision of lawmakers who established the flat tax in 1987 to broaden the tax base and set the economy on a path for success.
And by all accounts their tax reforms have proved successful.
Those lawmakers understood that low taxes attract businesses, residents, and capital. Since 1997 (the earliest data available), state GDP has more than doubled and the population has grown by 50 percent. As a result of a major influx of people and economic growth, income tax revenue rose from $3 billion in 1997 to $6.7 billion in 2017, all without raising income taxes.
While proponents claim this measure will make the rich and well-to-do pay their “fair share,” the biggest
casualty will be “pass-throughs,” or small business owners. The income from these firms is passed through to the individual owner and tax is paid through the individual tax rate, instead of as a corporation. According to a 2011 Ernst and Young study, 95 percent of firms in Colorado are pass-throughs that employ 60 percent of private sector workers, totaling 1.5 million people.
Surely taxing the most important sector of Colorado’s economy is not the most economically responsible approach towards adequately funding education. Draining desperately needed capital out of small businesses will have economically perverse effects because it could limit expansion of new locations, make it harder for business owners to stay afloat, and impact the hiring of new, often lower-income and unskilled workers.
Tax increases take money out of the pockets of entrepreneurs and consumers that should be invested back into the local economy instead of in the coffers of government.
Equally as problematic as burdening individual taxpayers and small business owners is the desire of activists to raise the corporate income tax rate from 4.63 percent to 6 percent. Firms respond positively to reductions in tax rates, and respond negatively to tax increases. By raising the corporate tax rate, companies will have less cash available on hand to invest in their workers or new equipment, which as a result hurts workers and commerce.
Worse yet, raising the corporate tax would make the state less competitive compared to its neighbors, which could hamper investment into Colorado. As it stands, Colorado has a corporate tax rate that is lower than 6 of its 7 neighbors (neighboring Wyoming does not have a corporate tax), but if voters approve this amendment and raise the rate, the state would have a rate that is lower than only three of its neighbors. Approving this measure would be equal to sacrificing the state’s competitive economic edge. Colorado already ranks 18th in the nonpartisan State Business Tax Climate Index, but raising both the individual and corporate rates will surely cause that ranking to drop.
Voters handily defeated a similar, less extreme measure in 2013 and they should do the same this time around. At a time when states across the country are enacting pro-growth changes to their respective tax code to make them more attractive for business investment, the last thing voters should do is push Colorado in the opposite direction. If voters approve these ill-advised tax increases, they will effectively be saying “I’ll pass” to more economic growth and better jobs.