Colorado income tax cuts benefit the rich most, nonpartisan analysis finds

Colorado income tax cuts benefit the rich most, nonpartisan analysis finds

Republicans are out of power in this state, but the income tax rate keeps falling

By Alex Burness (March 3, 2022)

When Colorado’s income tax rate shrinks, the rich reap greater benefits and inequality stretches, a new nonpartisan legislative analysis finds.

The analysis considered the potential demographic effects of HB22-1201, a Republican bill that proposes to reduce the state income tax rate, which applies to people of all income levels, from 4.55% to 4.4%.

“This bill may increase existing income disparities by providing larger tax savings for those with higher incomes, both in absolute amounts and proportionally to income,” the report reads.

Republicans believe the rate is too high, and have introduced proposed cuts at the legislature for several years in a row, with no success. This year’s bill and any others like it are virtually guaranteed to fail as long as Democrats control state government.

But the income tax rate keeps falling.

It was set at 5% for both individuals and corporations in 1987, and has been cut three times since then — most recently via a conservative-backed 2020 ballot measure. Conservatives plan to try to qualify for yet another ballot initiative this year to cut the income tax to 4.4%, which means they could get their way even with the statehouse bill likely headed nowhere.

The nonpartisan analysis states that households — single individuals or joint filers — with incomes above $150,000 would see 58% of the taxpayer savings brought about by the policy, even though that group comprises just 13% of Colorado’s taxpaying population.

A 17% plurality of Colorado taxpayers have incomes between $15,000 and $29,999, but that group would see just 1.8% of the savings, the report states.

There’s no scandal in these findings, said state Sen. Jerry Sonnenberg of Sterling, a Republican who is co-sponsoring the tax-cut bill. Naturally, they say, savings are higher for people who have more money to begin with, just as people with more money would bear a greater overall burden if the flat income tax were increased.

“The whole idea is to allow taxpayers to keep more of their own money so they can revitalize an economy,” Sonnenberg said.

He added that he’s not sure why the analysis used “family median income,” which takes sources other than wages into account, as the household measure.

The analysis notes that non-white Coloradans are more likely to earn lower incomes, which means income tax cuts deliver disproportionate savings by race.

“For example,” the report reads, “while Hispanic/LatinX individuals constitute 21.8 percent of the statewide population, they constitute 29.7 percent of those with a family income of $0 to $29,999 and 9.9 percent of those with a family income of $100,000 or more.”

Cutting the income tax is a favorite policy pursuit of Colorado Republicans and of the Democratic governor, Jared Polis. Polis has even called for the state income tax to be eliminated altogether, though he concedes there is no immediately apparent political path to get that done.

The Democrats who hold majorities at the statehouse stand apart from Polis on this matter.

“The flat tax system in the first place is pretty inequitable,” said Lakewood Rep. Chris Kennedy, the Democrat chairing the House committee that is poised to kill HB22-1201. “When you’re asking a lower-income person to pay five-ish percent of their income, that takes a much bigger bite out of their ability to pay for gas and groceries than it does for someone making a million dollars a year.”

Democrats like Kennedy prefer a graduated income tax scale, in which people with higher incomes pay a higher rate. This does not exist in Colorado and, due to the Taxpayer’s Bill of Rights, cannot exist without voter approval.

Statehouse Republicans reject the notion that a flat income tax can be inequitable.

“Everyone is paying their fair share in a flat rate,” said Sage Naumann, spokesman for the Colorado Senate GOP. “So what are they getting back when you cut it? Their fair share.”

Read more at DenverPost.com

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