A sustainable path to zero income tax for Colorado.
At a time when Coloradans have been hit with the largest cost of living increase in over four decades, our politicians insist on continuing to over-collect taxes. That’s just not right. It’s time for Colorado to lower the income tax rate so every Colorado worker can keep more money in their pocket with each paycheck.
Thanks to the Taxpayer’s Bill of Rights (TABOR) in Colorado’s constitution, there’s a limit to how much of your money the government can spend. When the state collects more tax money than they’re allowed to spend, the excess comes back to taxpayers as a refund. That’s a good thing, but it would be better if we weren’t over-taxed in the first place!
State economists currently expect the state to continue over-collecting taxes indefinitely. Governor Polis said it right when he called this “a signal that tax rates have been too high.” He believes, “The proper response to this signal is not to have it keep signaling, but to get the message and cut tax rates permanently.”
Remember, getting a refund check means the state took too much from your paycheck and waited a year or more to give it back. That’s especially harmful to vulnerable Coloradans working paycheck to paycheck during inflationary times.
That’s where Path to Zero comes in.
How it works.
Independence Institute, a Denver-based public policy think tank, has a Path to Zero income tax plan, which would require the state to lower the income tax rate to a level that prevents over-collection of taxes. This plan allows the state to lower its income tax rate over time without impacting any spending on state programs.
Under the plan, income tax rates will only go down when the state has surplus revenue. As the state’s economy grows over time, state tax revenue will increase and eventually lead to another surplus. That will allow the state to ratchet down the income tax rate once again. By repeating this over time, Colorado can phase out its income tax in a sustainable way that does not cut spending for any state programs.
Making the tax cuts permanent will prevent the state from over-collecting taxes in the future, ensuring Coloradans continue to see the benefits of income tax reductions. Permanence will also provide the stability necessary for businesses to make investments in the state. The new tax rate will 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. This truly is a sustainable path to zero income tax for Colorado.
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 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.” He went on to explain that taxing income discourages productivity and growth. He’s right. Eliminating the state income tax is a bipartisan idea that has received notable support from Democrat Governor Jared Polis and Republicans.
Based on current estimates from state economists, eliminating the state income tax entirely would put an average of nearly $4,000 back in the pocket of each Colorado taxpayer annually.
Sign up below to join us on the Path to Zero and help us put more money back in Coloradans’ pockets.