Proponents of a progressive state income tax claim that it will give most Coloradans a break on their taxes.
Those familiar with history, inflation, and bracket creep see a much different long-term picture.
Repeating History
The US adopted a federal income tax in 1913, justified by the claim that only about one percent of the population would pay the tax in its earliest years.
Does this sound familiar?
Proponents of Initiative 195, the ballot measure to switch Colorado’s 4.4 percent flat income tax rate to a progressive tax, are adamant that the measure is fair because 97 percent of filers will receive a tax cut.
But such assurances in 2026 face the same economic problems as the claims made in 1913, namely that a static snapshot of a tax policy’s impacts will never represent the dynamism of real economic phenomena.
The way in which the numbers are expected to change after a given policy is implemented often ignores second-, third-, and fourth-order effects.
Many in 1913 likely did not predict the exponential growth in the size of the government to fund world wars and entitlements, and that nearly everyone would eventually pay the federal income tax.
Similarly those supporting Initiative 195 do not appear to fully understand the impacts of inflation or bracket creep.
Understanding Inflation
To understand bracket creep, Colorado voters first need to understand inflation.
Inflation is the general increase in the prices of goods and services over time, which reduces the purchasing power of money. When the amount of money in the economy grows faster than the supply of goods and services, it takes more dollars to buy the same things—hence the loss in purchasing power. The Federal Reserve plays a central role in this by managing the money supply and interest rates, though inflation can also be pushed by high consumer demand, rising costs for businesses, and other economic forces.
Bracket Creep
So, what does this have to do with Initiative 195?
Initiative 195’s six new marginal tax brackets are not indexed for inflation, meaning that as people’s incomes increase—partly from real increases in wages but largely due to inflation—they will be pushed into higher brackets over time, thus paying an ever-higher income tax rate, while the brackets stay at the same nominal level.
Let’s put this in perspective:
A tax filer with an $81,800 federal taxable income (Colorado’s average as of 2023) in the first year of the measure would pay a top rate of 4.2 percent.
However, in five years, assuming a 3 percent inflation rate and 1.7 percent real wage growth(Colorado’s historical averages), that filer will have crossed into the next bracket (4.4 percent) with a federal taxable income of about $103,000.
Despite being in a higher bracket, the filer would only have the purchasing power of about $89,000.
But if indexed for inflation, it should take the filer twelve years instead of five to reach the next bracket.
Given enough time (Initiative 195 would be permanent), everyone would be taxed substantially more than they should according to their personal purchasing power.
That is a major tax hike on Coloradans through no fault of their own.
Surprisingly, Colorado’s very own Blue Book drafters did not include this information in the first draft analysis for Initiative 195. Luckily, it was mentioned in the second draft, and it will hopefully be given the attention it deserves when it reaches voters in the final version.
The idea that 97 percent of Coloradans will receive a tax cut sounds seductive on its face, but inflation and bracket creep make it a short-sighted (and disingenuous) representation of what will actually happen if Initiative 195 is passed.
