The state constitution requires the state to produce a voter information booklet, commonly known as the “Blue Book,” on every legislatively referred and citizen-initiated measure to appear on the statewide election ballot. The booklet, prepared by Legislative Council Staff (LCS), must provide fair and impartial analysis of each measure. LCS solicits public comments on both drafts it produces for each measure.
Independence Institute’s Fiscal Policy Center previously reviewed the first draft of the Initiative 195 analysis and submitted comments for review. LCS will review all public comments on the second draft and decide how to incorporate them into the official version for the Blue Book.
Independence Institute submitted the following comments on the second draft to LCS.
Title and overall framing – The title for Initiative 195 currently reads: Initiative 195: Graduated Income Tax
- As I noted in my comments on the first draft, I think this title is incomplete. This measure would not simply change the state’s income tax structure, but also significantly increase tax revenue and create a permanent exemption of new revenue from TABOR’s revenue limit. These are not merely incidental changes caused by the new graduated income tax structure—for example, a graduated state income tax structure could be made to remain revenue neutral. They are major changes in their own right, and I think it would be useful for voters to understand the entirety of what they would be approving.
- Voters need to understand that new revenue is preemptively exempt from being refunded to taxpayers even if actual revenue collections exceed the Blue Book forecast. This is different from other recent measures, such as when Proposition LL was created to allow the legislature to retain and spend Proposition FF money when collections exceeded the legislature’s expectations.
Suggested title: Initiative 195: Graduated Income Tax and Permanent TABOR Exemption for New Revenue
Page 1, starting at the Yes section – This sentence currently reads: A “yes” vote on Initiative 195 creates a graduated state income tax that increases revenue and uses the additional money for K-12 education, health care, and early childhood care and education.
- I think it is important, especially in this section, to make it clear to voters that the measure permanently increases revenue and the additional money is permanently exempt from TABOR’s revenue limit. I know this is explained later, but I think it should be made clear here as well.
Suggested language: A “yes” vote on Initiative 195 creates a graduated state income tax that permanently increases revenue and uses the additional money for K-12 education, health care, and early childhood care and education. The new revenue is exempt from TABOR as a voter-approved revenue change.
Page 2, starting at line 47 – This sentence currently reads: This is similar to how the federal income tax works, except the new state income tax brackets are not adjusted for inflation over time.
- I appreciate that you took my suggestion and mentioned bracket creep in the second draft. However, I still do not think this sentence does enough to explain the significance of what this means for Coloradans and the state economy in the long term. Voters could easily miss this sentence, and many might not actually understand what it means that the tax brackets are not adjusted for inflation. The long-term result is that Coloradans’ incomes will be hollowed out by inflation and the graduated income tax without an equal increase in purchasing power. It is absolutely vital that voters understand the long-term consequences of this measure.
Suggested additional language: Because the brackets are not adjusted for inflation, over time more Coloradans will be pushed into higher brackets even if their real (inflation-adjusted) income has not increased. This “bracket creep” will gradually raise the effective tax burden for a larger share of taxpayers.
Page 4, starting at line 77 – This sentence currently reads: The Colorado legislature will decide what specific programs the revenue gets spent on within those three areas.
- I believe this sentence should be made more explicit that there is no guarantee the money goes to all of these categories. As mentioned in my comments for the first draft, there is no minimum allocation for the categories. Meaning, a voter may approve the measure assuming that a greater portion of the new revenue goes to K-12 education, but the legislature is not guaranteed to spend it on K-12 education (especially if Proposition NN passes) and may instead direct the money to health care.
Page 5, under Arguments Against Initiative 195
- If space allows, it may be useful for voters to understand that the state’s flat income tax is already effectively progressive, while other state and local taxes tend to place a higher relative burden on low-income Coloradans. Thus, the primary impact of 195 would be to substantially increase taxes on higher-income Coloradans (who already supply almost half of the state’s income tax revenue) without meaningfully reducing the overall tax burden for lower-income Coloradans, who would still pay over a quarter of their incomes on state and local taxes, even if they paid zero state income tax, according to the CODOR.
Page 7
- As mentioned in my comments for the first draft, I still think this analysis needs a designated section on the potential lasting economic impacts of Initiative 195. While immediate impacts can be reasonably forecast and explained in the Blue Book, the lasting and unforeseen economic impacts are no less important. Higher marginal tax rates could significantly impact business location decisions, investment, Colorado’s business climate, and competitiveness, and Colorado would become one of the highest-marginal-tax states in the nation. Individuals and businesses are increasingly mobile, and that could meaningfully alter revenue forecasts as well.
