December 20, 2024 By Nash Herman

The University of Colorado’s Leeds School of Business recently released their 60th annual Business Outlook for 2025, and, despite a moderate outlook  in 2025, the report includes some disturbing trends in the Colorado economy.  Let’s take a look at some of what’s going wrong.

Troubling trends

As pointed out by Denver Post business writer Aldo Svaldi, Colorado was the fifth fastest growing economy in the country in the last 15 years, but was 41st this year.

In terms of personal income growth, Colorado moved from third to 39th.

Although Colorado only moved down from sixth to 15th for employment growth, it comes with the caveat that the job gains this year were skewed toward government, education and healthcare, and leisure and hospitality.

Conversely, the growth of the high-paying professional and business services industry has continued a downward trend since 2022.

Fueled by slowing migration to Colorado and an aging population, Colorado’s labor force growth ranking also moved from sixth to 29th.

Taxes, spending and regulation

Obviously, some of the problems with Colorado’s economy are externally caused, like the lingering effects of the pandemic and subsequent inflation from federal spending.

However, I think there is still more to be said as to why Colorado’s economy seems to be stuttering now.

Colorado’s shift toward bigger government and away from the free market is why these problems are beginning to manifest. Over-regulation, over-spending, and over-taxation are the key culprits. To Coloradans who have witnessed the economy’s decline, the most noticeable difference between today and twenty years ago is that the state now more closely resembles California more than the entrepreneurial Colorado of old.

As of 2023, Colorado was the 12th most heavily regulated state in the country with 165,994 regulatory restrictions according to the Mercatus Center.

Even more recently, the Colorado Chamber of Commerce ranked Colorado as the sixth most regulated state in the nation, with nearly half of its roughly 200,000 regulations being “excessive or duplicative“.

Unfortunately, most who turn to government to regulate businesses often do so hoping to restrict big corporations from exploiting workers and the environment.

What really happens is that increased regulations raise the barrier to entry for small businesses and consolidate more of the market share for big corporations.

In other words, heavy government regulation actually entrenches monopolies and hurts small business, which make up 99.5 percent of Colorado businesses and 47.3 percent of employees.

Aside from increasing regulations, the state government is dealing with a self-inflicted budget crisis that drags down the economy.

Those who favor bigger government over the market consistently blame the Taxpayer’s Bill of Rights (TABOR) for harming government’s ability to offer services and grow the economy. 

Actually, TABOR allows the government to reasonably grow along with inflation and population growth. 

The real cause of the budget crisis is overspending. 

Colorado received a windfall from the federal government during the COVID pandemic.

By creating new programs and tax loopholes with COVID funds, the state legislature now “needs” more money to continue propping up the new spending obligations.

Turning the ship

Despite the worrying trends of Colorado’s economy, the solutions are as simple as state government basically doing the opposite of what it is doing currently.

Deregulation frees individuals and small businesses to keep more of their money and take risks, and lowers the cost of living and doing business.

Simplifying the tax code, ideally by removing tax breaks and lowering or removing the income tax would again help individuals and small businesses in terms of both affordability and freedom, crucial ingredients for a growing economy.

In Jared Polis’ six years as governor, the Colorado legislature passed or significantly altered over 200 tax breaks for special interests.

Instead, the government could remove tax breaks and use that additional revenue to “buy down” the income tax rate for everyone – all without affecting the state budget.

In fact, lowering or removing the income tax would disproportionately help lower-income earners, as they need less money back in their pockets than higher earners to considerably improve affordability.

The combination of less regulation, responsible spending, and lower taxes could immediately produce more entrepreneurship and thrift, as well as a stronger economic forecast in future Leeds business outlooks.

 

Nash Herman is a fiscal policy analyst at the Independence Institute, a free market think tank in Denver.

Herman: Course correction needed for Colorado’s economic outlook – Complete Colorado