A sustainable path to zero income tax for Colorado.
Coloradans are facing the highest rates of inflation in over four decades. Rising prices are strangling small businesses and household budgets across the state. And an impending recession could make life in the Centennial state even harder for everyday Coloradans. Phasing out the state income tax would provide a much-needed boost in income for residents and local businesses while creating a stronger state economy.
Eliminating the state income tax is a bipartisan idea that has received notable support from Democrat Governor Jared Polis and Republicans. In an interview, Governor Polis observed that eliminating the income tax “would be a very pro-growth policy.” He went on to explain that taxing income discourages productivity and growth. He’s right. Based on current estimates from state economists, eliminating the state income tax entirely would put an average of about $3,600 back in the pockets of Colorado workers and businesses every year.
How it works.
Independence Institute, a Denver-based public policy think tank, has a Path to Zero plan, which would phase out the income tax in two steps:
Require the state to issue all future TABOR refunds through income-tax rate reductions
By requiring the state to issue TABOR refunds through income-tax rate reductions only when the state experiences a revenue surplus, the phase-down of the income tax rate will never blindside state budgeters. Income tax rates will only go down when the state is experiencing a surplus.
Make any new income-tax rate created by these reductions permanent
Making the cuts permanent will ensure Coloradans continue to see the benefits of income tax reduction in future years. It will also create a new revenue baseline from which state budgeters can craft future budgets—ensuring they can always plan ahead if revenue is expected to fall below the TABOR cap in the future.
Why Zero Income Tax?
When we think about how to tax, we should think about how a particular kind of tax will affect economic behavior. There’s an old adage in government: “If you want less of something, tax it.” This is one of the main political motivations for taxing things like cigarettes. “If we tax cigarettes, then we’ll get less smoking,” the logic goes. The same goes for every type of tax, and every type of tax has drawbacks. Sales taxes, for example, make it more expensive for people to consume goods and services. But by discouraging consumption, you also encourage people to save and invest more of their money—That’s a good thing. To evaluate a zero income tax policy, we should ask,“What type of activity does taxing income discourage?”
People generate income by investing, working, and being productive. The downside to generating state revenues through income taxes is that the approach will yield less of the very activity required to grow our economy, create jobs, and make everyone better off.
That’s why in an interview in 2021, Colorado’s Democratic governor, Jared Polis, argued that taxing income discourages productivity and growth and eliminating the income tax “would be a very pro-growth policy.”
Join us on the Path to Zero and help Coloradans keep more of their hard-earned money.