Inflation makes the case for lowering Colorado’s income tax
Inflation hit another 40-year high in June, according to federal inflation data released yesterday. Coloradans have taken the fight against rising costs into their own hands with a citizens’ initiative to lower the income tax rate and put the state on a path to zero.
Last July, as high CPI began to rear its ugly head, CNBC prophetically reported, “Inflation is the silent killer.”
Coloradans have certainly felt its sting.
Someone earning $70,000 per year in January of 2020, would now need to earn over $80,000 to maintain the same standard of living today as then. Many Colorado households and businesses have struggled to keep up.
According to the Bureau of Labor Statistics’ Consumer Price Index (CPI) report, inflation last month increased by 9.1% from a year prior. That’s up from 8.6% in May, reaching the highest level since November 1981.
An astounding $6.3 trillion increase in the U.S. money supply, combined with supply shocks induced by government-mandated economic lockdowns, has largely driven the record CPI print.
The Fed is now combating inflation by crushing consumer demand through higher interest rates and tight money—a move likely to trigger a recession. State lawmakers can do their part to help bring down prices in the Centennial State by rolling back many of their recent policies, which have pushed prices up.
These remedies, however, will take time to work their way through the economy. Meanwhile, the dark clouds of high (and rising) CPI have already brought financial storms over Colorado households and small businesses.
Coloradans need immediate relief.
They can take matters into their own hands with Initiative 31.
The citizen ballot measure will appear before voters this November and if adopted will reduce the state income tax rate from 4.55% to 4.40% starting this year. State analysts estimate the decrease would save Coloradans $382 million or an average of about $120 per taxpayer in year one.
The rate reduction would directly increase household budgets, helping Coloradans to afford the rising costs imposed on them by government, and provide a more effective reprieve than direct government aid.
When the federal government deployed stimulus during the pandemic, they effectively had to print new money. The decision devalued the dollar and created massive inflation.
Like federal stimulus, an income tax cut would put more money in Coloradans’ pockets. But rather than printing new money, the policy simply allows Coloradans to keep more of their own money.
This is the way forward.
The policy will increase incomes and allow families and businesses to absorb increased costs, but its benefits go much further.
More money remaining in the private sector means more investment in our communities and local economies. With it, the economy will grow and catch up with the expansion in the money supply, making it easier for everyday Coloradans to afford the “new normal” prices brought on by government.
The last couple of years have demonstrated that when politicians and bureaucrats have more money and power, they botch it.
As inflation began to exceed historic norms last spring, the Biden Administration and the alleged experts at the Federal Reserve refused to address the problem, calling it “transitory.”
Echoing those faulty conclusions, Colorado’s Legislative Council Staff economists concluded in their June 2021 economic forecast, “Inflation shoots above Federal Reserve target, but is expected to moderate throughout 2021.”
The experts and central planners, with all their wisdom and PhDs in economics, failed to understand that their policies would bring about historic and persistent inflation. And yet they still do not learn.
In response to yesterday’s inflation announcement, the White House’s chief economic advisor, Brian Deese, called on Congress to print and spend more money to bring down inflation.
Policymakers created the mess we find ourselves in now. Reducing the income tax will equip hardworking Americans to clean up after them.
Allow Colorado families and businesses to keep more of what they earn, and they will strengthen the economy.
But we will not get there with Initiative 31 alone.
Denver-based think tank Independence Institute has proposed a Path to Zero, which would gradually reduce Colorado’s income tax rate until we have joined the nine other states that have eliminated their income tax entirely.
This November, voters will have a chance to ease the burden of inflation with Initiative 31. After that, it will be up to all of us to put Colorado on the path to zero.
This opinion editorial first appeared in Complete Colorado under the byline “Ben Murrey” on July 15, 2022. Ben Murrey is Fiscal Policy Center director at the Independence Institute.