Study finds special interest tax deals eating up Coloradans’ TABOR refunds
August 9, 2024 By Savana Kascak
DENVER–Governor Jared Polis has consistently said he wants to lower the Colorado income tax, even claiming that legislation passed earlier this year would deliver on that promise. But new research shows that billions of dollars in special interest tax breaks also passed this year in all likelihood means broad-based income tax relief is off the table for the foreseeable future.
Earlier this year, Governor Polis signed Senate Bill 24-228, temporarily lowering the state income tax rate, on a sliding scale, as a refund mechanism when surplus revenue under the Taxpayer’s Bill of Rights (TABOR) is more than $300 million in a given fiscal year, with the maximum rate reduction (from 4.40% to 4.25%) kicking in at a $1.5 billion surplus.
TABOR is a constitutional amendment that requires, among other things, state revenues collected in excess of of a formula of population growth plus inflation be refunded back to taxpayers, unless voters consent to forgo those refunds at the ballot box. An income tax rate reduction is but one potential refund mechanism available to the state.
According to a newly released issue brief from the Independence Institute*, a free market think tank in Denver, the more than $10 billion (cumulative over a decade) worth of what are called “tax expenditures” passed in 2024 will eat up that TABOR surplus, effectively halting future income tax cuts.
“The TABOR surplus revenue diverted to fund new 2024 tax credits will likely nullify potential future broad-based income tax cuts proposed by SB24-228 in subsequent years,” according to the brief, titled How New 2024 Tax Expenditures Undermine TABOR.
Tax expenditures allow certain special interests to enjoy a lighter tax burden through tax credits, which reduces state revenues. This in turn lowers the TABOR surplus available to be refunded to taxpayers. In other words, the higher the TABOR surplus, the more money there is available to pay for ever-more tax expenditures without affecting existing state government spending.
“The measures passed in this blue state because the cuts did not affect any government services, rather they just reduced the TABOR surplus,” said Mark Berndt, one of the authors of the brief.
According to the brief, the tax expenditure bills signed into law by Polis just in 2024 reduce state revenues by $10.9 billion over the next 10 years, which is a more than four times more than in the previous five legislative sessions combined, effectively increasing the burden on other taxpayers.
“Tax expenditure modifications passed in the 2024 session alone amount to a $3000 tax increase per tax filer over the next 10 years, as this revenue would otherwise be returned through TABOR refunds.”
The issue brief is available here.
*Independence Institute is the publisher of Complete Colorado.
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