Colorado voters have narrowly passed Amendment 87, thereby inflicting upon themselves a progressive or graduated income tax—that is, a tax punitive as to income and punishing productivity. Because Amendment 87 was a state constitutional amendment, ideally it should require 55 percent to pass, but advocates employed a loophole that allows amendment by a simple majority.
Amendment 87 will be horrible for Coloradans.
But there is both a silver lining for Colorado and a silver lining for all our competitor states.
The silver lining for Colorado is that, even though Amendment 87 was designed to bring in more government revenue, it eventually will produce less. It will end the state’s budget surpluses, curb its lavish spending, and force the legislature either to (1) make budget cuts or (2) incur the odium of proposing even more tax hikes.
In an earlier post, I explained how the progressive tax helped ruin the Montana economy and triggered years of state government budget deficits—and how, once the state dropped rates and largely abandoned progressivity, the state recovered and began to enjoy annual surpluses.
This is because state progressive income taxes reduce economic growth—and therefore state revenue growth—in at least three ways:
- They drive some investors out of state;
- they discourage new entrants, and most importantly,
- they discourage entrepreneurial decisions by people who are and remain state residents, but decide not to start a new business, or expand an existing one, within the state.
The second silver lining is for other states. I shouldn’t be surprised if economic development officers in those states are having parties to celebrate the passage of Amendment 87—because as an economic competitor, Colorado just shot itself in the foot.
ALL the states in Colorado’s region—the ones that compete directly with us—either don’t have an income tax at all, or have rates that are low and/or falling. Here they are:
- Nevada has no income tax.
- Wyoming has no income tax.
- South Dakota has no income tax.
- North Dakota has dropped its rate from 7.5% to 2.5%.
- Arizona has reduced its rate from 8.0% to 2.5%.
- Idaho has sliced its rate from 7.4% to 5.3%.
- Kansas has cut its top rate from 5.7% to 5.58%.
- Montana has dropped the top rate from 11% to 5.68%. In 2027, it goes to 5.4%.
- Nebraska has cut its rate from 6.99% to 4.55%, In 2027, it will be 3.99%
- New Mexico has cut its rate from 8.2% to 5.9%.
- Oklahoma has cut its rate from 17% to 4.5%
- Utah has dropped its top rate from 7.75% to 4.45%.
So if you are an economic development officer in any of those competing states, there’s joy in the old town tonight!!!
Because the proud pacesetter of the Rockies—Colorado, mighty Colorado—has, like Casey—just struck out.