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 all drafts it produces for each measure.
Independence Institute’s Fiscal Policy Center previously reviewed the first draft and second draft of the Initiative 195 analysis and submitted comments for both versions. LCS will review all public comments on the third draft and decide how to incorporate them into the official version for the Blue Book.
Independence Institute submitted the following comments on the third draft to LCS.
Title – The title for Initiative 195 currently reads: Initiative 195: Graduated Income Tax
- As I explained in my comments on the first and second drafts, I think this title is incomplete. While I appreciate that you created a separate point in the first section to explain the preemptive revenue exemption, I think the title should make it clear as well, given the popularity of TABOR’s requirement that the legislature usually ask voters again if a tax measure exceeds revenue expectations.
Suggested title: Initiative 195: Graduated Income Tax and Permanent TABOR Exemption for New Revenue
Page 2, starting on line 49 – This sentence currently reads: Unlike the federal income tax, the new state income tax brackets are not adjusted for inflation, so more of taxpayers’ incomes will fall into higher brackets over time.
- As mentioned in my comments for the second draft, I appreciate that you added this sentence to the analysis. However, as before, I must stress that the changes made to this sentence for the third draft are still unlikely to be enough to help voters grasp what this means for taxes and the economy in the long term. For example, a tax filer with an $81,800 federal taxable income (Colorado’s average as of 2023 CODOR SOI tables) in the first year of the measure would pay a top rate of 4.2 percent. However, in five years, assuming a3 percent inflation rate and 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 have only about $89,000 in purchasing power based on 2023 dollars. If 195’s brackets were indexed for inflation, it would take the filer 12 years instead of 5 to reach the next bracket. Given enough time, 195 is a de facto tax increase for all Coloradans, especially in terms of purchasing power.
Page 3, under How does Initiative 195 change the amount of taxes owed? And Table 2 – This section currently reads: For individuals and businesses with taxable incomes of less than $500,000, the measure decreases the amount of income taxes owed. For taxpayers with incomes of about $500,000 and above, the measure increases the amount of income taxes owed.
- I must continue to stress that Initiative 195 is not indexed to inflation and can very quickly result in certain tax filers no longer receiving the permanent tax cut they might expect when voting for the measure. While it should not be expected that the Blue Book forecast explicit numbers several years into the future, I think it should be clarified again that as wages and inflation increase, the decrease in taxes (which is a key selling point for the measure) will only become less pronounced over time, so that (assuming no other changes) a growing share of Coloradans would actually experience higher effective taxes relative to purchasing power.
Page 4, starting at line 74 – This sentence currently reads: However, actual revenue collections may be more or less than this estimate depending on economic conditions and other factors.
- It may be worth expanding on here that actual revenue collections may be directly impacted by the change to the tax structure, potentially resulting in worse-than-expected collections in the long term. While not certain, a slower-growing economy in the long term due to increased taxes on Colorado’s job creators remains a risk that voters would likely want to know about.
Page 4, starting at line 91 – This sentence currently reads: The state legislature will decide what specific programs will receive additional funding and how much.
- While I do think this sentence is slightly improved from the previous draft, I still believe it should make it clearer that there is no guarantee the money goes to all of these categories. As mentioned in my comments for the first and second drafts, 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 4, starting at line 102 – This sentence currently reads: Initiative 195 cuts taxes for 97 percent of taxpayers, including most households and small businesses, while increasing taxes only for top earners who have the ability to pay.
- The statement that 97 percent of taxpayers will receive a tax cut reflects short-term, static estimates. Because the tax brackets are not indexed for inflation, the share of taxpayers receiving a net tax cut will shrink over time as nominal incomes rise. Voters should understand that the long-term distributional effects will differ significantly from the first-year snapshot.
Starting on Page 5, under Fiscal Impacts of Initiative 195
- As I explained in my comments on the previous drafts, I think this analysis warrants a dedicated “Economic Impacts” section. As explained in this Literature Review from the nonpartisan Tax Foundation, “Taxes on income and wages reduce the incentive to work. Progressive income taxes, where higher income is taxed at higher rates, reduce the returns to education, since high incomes are associated with high levels of education, and so reduce the incentive to build human capital. Progressive taxation also reduces investment, risk taking, and entrepreneurial activity since a disproportionately large share of these activities is done by high income earners.” These are significant risks to Colorado’s economy that are not currently presented in the analysis.
