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Bishop: CO Legislature using TABOR refunds to pay for special interest tax benefits

Bishop: CO Legislature using TABOR refunds to pay for special interest tax benefits

With the public distracted by gun control, abortion, and other hot-button issues, the Democrat-controlled Colorado legislature is quietly advancing nearly two dozen bills to redistribute your taxpayer refund to special interests.

The Taxpayer’s Bill of Rights (TABOR) in Colorado’s Constitution requires the state to refund excess tax revenue back to taxpayers. The state cannot spend this surplus revenue without asking voters at the ballot.

But there’s a loophole.

If legislators give your refund to someone else as a special tax benefit, it’s not considered spending. It’s considered a tax revenue reduction, so they can do it without asking you.

Any time certain people get a special tax break, that reduces total state revenues. If revenues go down, the surplus goes down. If the surplus goes down, your refund goes down.

That’s how legislators are stealing from all taxpayers to give to a few politically favored interests. And they’ve been doing it for years, but never on the scale being proposed by Democrats this year.

The ‘tax expenditure’ game

report last year by Independence Institute found that all bills Governor Polis signed in his first term “had a net cumulative impact of increasing special interest tax benefits by approximately $640 million over ten years.”

The report looks at every modification of “tax expenditures” passed into law from 2019 through 2022. Tax expenditures include tax credits and deductions designed to lower taxes for taxpayers who meet criteria prescribed by the politicians who created them.

In other words, tax carve outs for special interests.

Over the last four legislative sessions, the legislature created an average of $64 million per year in these new tax expenditures. That’s an average increase of $16 million per session.

During this year’s session alone, the legislature is proposing a $626 million per year increase in special interest tax benefits.

That’s absolutely staggering, and every dime will come out of taxpayer refunds.

Remember the $750 checks—$1,500 for joint filers—you got in the mail last summer thanks to the Taxpayer’s Bill of Rights? The proposed legislation would significantly shrink the size of those checks. If adopted, the bills would reduce refunds by about $1,350 per taxpayer over the next 10 years.

One of the bills proposes giving $40 million of your refund to owners of electric lawn equipment. Another bill extends the electric vehicle tax credit—a benefit enjoyed almost exclusively by wealthier Coloradans.

The largest increase comes from House Bill 23-1112. If adopted, the bill would expand the Earned Income Tax Credit and the Child Tax Credit. The change would increase state tax expenditures by nearly $400 million per year.

How about an income tax cut instead?

The legislature previously increased these credits in 2020 and 2021. Those expansions already reduced taxpayer refunds by about $250 million per year. Nearly $70 million of that came from extending eligibility to residents who previously did not qualify because they don’t have a Social Security number.

Without these credits, state surpluses next year would total about $2.15 billion based on estimates from state economists. The credits, with the proposed expansion, would reduce taxpayer refunds by about $650 million per year.

That’s a loss of $180 per taxpayer.

But it gets worse. The credits are “refundable” tax credits, meaning if someone qualifies for them, they will get a check in the mail from the state even if they paid no taxes.

Think about that. Someone could be in this country illegally and pay no taxes, and under this law, they could get a check in the mail from the state. And it will come directly out of your refund. Because politicians called that check a “tax expenditure,” it doesn’t count as a state expense above the constitutional limit, so it doesn’t require voter approval.

Anyone who listened to Governor Polis on the campaign trail might be a bit confused about how this could happen. He told voters he wanted to “eliminate deductions and loopholes that benefit special interests.”

Yet, every bill that expanded special interest tax benefits required his signature to become law.

Those in favor of these policies say the state should use this money instead of letting it sit on the sidelines, waiting to go back to taxpayers as a refund. They’re not entirely wrong.

The state should not be collecting billions of extra dollars from taxpayers every year in the first place. But they also shouldn’t be reducing those surpluses by handing out special interest tax benefits. Instead, they should do what Polis has repeatedly suggested.

In his State of the State address earlier this year, the governor explained, “With healthy budget surpluses from our strong economy, we should further reduce the income-tax rate for everybody.”

To put it differently, rather than reducing the surplus by handing out special tax benefits to a few, we should lower the income tax rate for everyone. Then, we wouldn’t have massive surpluses to begin with. More money would simply stay in hands of those who earned it.

So, if the legislature sends these tax expenditure bills to the governor’s desk, I look forward to his veto and his continued work toward reducing the state income tax.

Lauren Bishop is a senior studying economics at the University of Colorado at Colorado Springs. She is part of the Future Leaders program at the Independence Institute, a free market think tank in Denver. This op-ed first appeared in Complete Colorado on April 24, 2023.