Colorado Democrats are trying one of the biggest tax changes in the state in years.
Two new proposals, unveiled on Monday, are designed to provide relief to low-income families and small businesses by effectively raising taxes on certain large businesses and richer people, lawmakers said.
The bills would gross in about $ 400 million a year by eliminating or reducing some of the tax deductions made by taxpayers and higher-income companies, and then spending most of that money – about $ 250 million – on actions on it aim to help low-income families and small business families.
“I think the word ‘fairness’ is my north star here – to make sure we are supporting our Coloradans and low and middle income small businesses and not protecting the special interests that run through the halls of the Capitol,” said Rep. Emily Sirota, who is supporting the new Bills HB 1311 and HB 1312 together with MP Mike Weissman and Senators Chris Hansen and Dominick Moreno.
The plan is backed by Governor Jared Polis, whose spokesman Shelby Wieman described it as “an important step towards much-needed aid” for the families and small businesses hard hit by the pandemic.
Taxes have long been a tough issue for democratic lawmakers, who generally advocate generating more revenue in order to achieve their political goals. The Taxpayer’s Bill of Rights (TABOR) states that lawmakers cannot levy taxes without voters’ permission. And the law also locked the state in a “flat” income tax rate, making it difficult for Democrats to keep their promises to tax the rich.
The new calculations try to get around these limits. Weissman said the changes would not require voter approval, although they would bring in new tax revenue. Instead of changing the tax rates, the bills focus on changing definitions and removing deductions. The courts have decided that the legislature can change deductions, credits and so-called loopholes without violating TABOR.
The changes were inspired by politics in other states – and by the pandemic, Weissman said. Last year lawmakers passed a similar package of tax credits, and some temporary changes, as it tried to offset the crater-like sales and income tax receipts from the shutdown.
The economy and the national budget are doing much better now. However, the sponsors said the bills would provide vital support to small businesses and those on lower incomes who have recovered much more slowly.
“By making some changes here that we believe have a solid foundation in state research and practice, we can have fairer and more moral tax laws,” Weissman said. “We can better promote the opportunities for everyone in our state.”
Polis highlighted some of the ideas in this package in his annual address earlier this year, including increasing the state earned income tax credit and creating a state tax credit for children.
“Since the beginning of my tenure, we’ve worked together to make Colorado’s tax code fairer by eliminating special interest tax breaks that few benefit from and using those savings to lower taxes for the rest of us,” he said.
The governor also expressed support for the slight decrease in income taxes that voters approved last year. Other Democrats disliked this change, saying it took away the money it needed, but Polis said both the tax cut and his own proposals would bring tax breaks.
“It’s hard to tell which side of the tax debate he’ll definitely fall on when it comes to Governor Polis. Sometimes he’s on both, ”said conservative organizer Michael Fields, who passed the tax cut.
Fields said the new tax package had a few things he could support, particularly the idea of focusing on low and middle income people. However, he argued that Democrats could have unintended consequences by eliminating some tax breaks, such as job losses or company relocations.
Republican legislature leaders were not immediately available for comment Monday. The bills can be among the biggest tax changes the state has made in years if passed. In 2010, in the midst of the great recession, despite unanimous Republican opposition, the Democrats abolished a series of tax exemptions valued at around $ 118 million.
In the meantime, voters may also have the option to approve some tax changes later this year. Fields and his organization, Colorado Rising Action, are collecting signatures to take two actions for the November election. One would effectively cut property tax by 9 percent, or about $ 1 billion – which partially offsets the hikes many are seeing due to their rising property values.
Here are some of the biggest new annual expense items
These would reduce government revenues by passing them on to people and businesses:
- $ 104 million: Finally, create and expand a state child tax credit. This loan would pay up to $ 600 for each child under the age of 5. It would go to families with a combined income below $ 85,000. (Single parents could earn up to $ 75,000.) This credit would be “refundable,” which means that individuals who have no state tax liability would simply receive a check from the government for that amount.
- $ 48 million: Expand the state version of the federal earned income tax credit. The EITC is a federal refundable credit available to anyone earning less than $ 60,000, depending on how many children they have. Currently, the state of Colorado is receiving an additional refund equal to 10 percent of the federal loan. The new bill would increase this to 20 percent and expand eligibility for both younger and older people.
- $ 71 million: Free more businesses from paying taxes on personal property, which are annual taxes based on the value of assets like computers and furniture. Currently, companies with less than $ 8,000 are exempt. The bill would raise that cap to $ 50,000 worth of corporate assets and compensate local governments for losing revenue as a result.
- Other things lock in $ 10 million create new tax incentives for employee-owned companies and $ 18 million Allow retirees to deduct their full social security benefits from their taxes. The bills would send an additional one $ 150 million to the general fund, which can be used for general government spending.
This is where the package would find the money to pay for its proposals
- $ 111 million: For people who earn more than $ 400,000, Cap single prints at $ 30,000 for individuals and $ 60,000 for couples. Itemized deductions allow people to lower the taxes they pay by deducting certain expenses – like mortgage interest and medical expenses – from their income.
- $ 50 million: Eliminate the state part of the “Pass-through” deduction for certain business owners. Basically, the 2017 federal tax law allowed certain business owners to cut off about 20 percent of their personal tax bills. Last year, lawmakers said the discount should no longer apply to Colorado taxes. The new bill would make this change permanent. (It would exempt people making less than $ 500,000 – or $ 1,000,000 combined – and allow them to continue taking the deduction.)
- $ 20 Million: Eliminate Capital Gains Deduction. There is currently no government tax on capital gains. With this change, people would pay state income taxes – about 4.6 percent – on the profits they make from selling assets like land, stocks, and businesses in addition to federal taxes.
- Other changes: Contribution caps to 529 college savings plans of $ 15,000 for joint applicants.
- $ 80 million: Do it harder for insurance companies request a substantial deduction from their business taxes. The original trigger rewards companies with offices in Colorado, but the sponsors say it did little to fuel employment growth.
- $ 40 million: Eliminate a “Loophole” that allows insurance companies Pay lower taxes on the sale of annuities compared to financial institutions.
- $ 25 million: “Clarify” them Deductions made by oil and gas companies can assume certain costs.
- $ 17 million: Limit your use of a discount called a “seller fee”. for retailers with monthly sales in excess of $ 1 million. This is basically money that the state sends back to businesses to cover the expense of collecting sales taxes.
- Other changes: Change the way Colorado Tax multi-state companiesTo prevent companies from using Offshore tax havenschange the way businesses can Deduct meal costs;; and codify how tax advisors assess business tax.