Every Colorado income taxpayer will get a gift from TABOR this tax season, even if it’s the smallest of the projected refunds – $21 for a single filer.
But the working poor will get an extra boost from the Taxpayer’s Bill of Rights in 2016 because the state took in enough revenue last fiscal year to trigger a Colorado version of a federal tax credit. Almost 400,000 Coloradans will receive an average of $217 as part of their income tax return for the 2015 tax year – 10 percent of their federal Earned Income Tax Credit.
“These are people who are working. They are employed, they earn money but they aren’t making enough to get by,” said Tim Hoover, communications director for the Colorado Fiscal Institute. “A lot of them are working two or even three jobs. These are people who really need a little bit of extra boost in their paychecks.”
Hoover said many economists – both Republicans and Democrats – are advocates of the federal program, which has been among “the biggest and most successful anti-poverty programs this country has ever seen.”
Eligibility for the Federal EITC, created in 1975, is determined by a sliding scale. For example, a single man could make up to $14,820 in 2015 and qualify. A single mother of three could make up to $47,747 and a married couple with two children filing jointly could make $49,974.
Colorado lawmakers first approved the idea of creating a state EITC in 1999. It was one of three mechanisms to refund money when the state was required to do so under the revenue limits of TABOR. The last time TABOR refunds were given was 2001, before voters approved a temporary TABOR timeout and a raising of the revenue threshold.
But in 2013, Democrats in the House and Senate passed Senate Bill 1, which said the next time a TABOR EITC refund was triggered, the EITC would become permanent. The bill passed both chambers despite opposition from Republicans and was signed into law. Republicans opposed the measure because the tax credit is refundable, meaning it can exceed a person’s tax liability. So in essence they could pay nothing in taxes yet get a big tax refund. Republicans said it was a handout. Democrats argued that to qualify a person must earn a wage, be working and file taxes, all of which are behaviors entitlement programs should reward.
The program is expected to pay out $85.7 million in the 2015 tax year, according to the December revenue forecast from the Office of State Planning and Budget. It will grow to $70.8 million in the 2016 tax year.
Because the tax credit is becoming permanent, that revenue will no longer count against the state’s TABOR refund threshold. In other words, the budget will treat it like money that was never collected – a tax expenditure.
According to the Internal Revenue Statistics on the Earned Income Tax Credit, last year 351,000 Coloradans received a total of $772 million through the federal EITC – an average of $2,200 per tax filer.
But many people don’t know about the EITC or that they qualify and fail to claim their refund.
In tax year 2012, Colorado was among the states with the lowest participation rates of those the IRS was able to identify as likely being eligible. Only 73.5 percent of those deemed eligible claimed the tax credit. The estimated national average participation rate is 80 percent.
Twenty-four other states offer some type of EITC to their residents for state taxes, according to the IRS.
Hoover said the state and federal EITC help rectify what is a very regressive tax system in the United States.
Taxes on sales and special taxes like the gasoline tax take a higher percentage of the income for poorer families than richer families.
“People on the lower income scale, they spend a greater portion of their income on the necessities of life and therefore a greater portion of their income is subject to tax,” Hoover said.
Contact Megan Schrader: 286-0644