Colorful Commentary

Outdated Tax Laws Could Hurt Colorado’s Amazon Chances

Posted October 30, 2017 by Elizabeth Cheever

By CFI Economic Policy Analyst Elizabeth Cheever

Who else is sick of hearing about this

Who else is sick of hearing about this

You may have heard that tech giant Amazon is seeking a home for its second headquarters (HQ2). The online retailer promises 50,000 highly-paid jobs and solicited bids from cities across North America; 238 proposals were submittedCities have scrambled to offer creative incentives and attention-grabbing stunts, like a large cactus, giant Amazon boxes, and $7 billion dollars in tax breaks.

Tax incentives have become common practice in state efforts to lure employers. But as the trend grows, economists and researchers have pushed back against the notion that companies relocate because of tax breaks alone. Analysis shows investment in public goods like schools and transit are what make skilled workers and their employers want to put down roots. For evidence, look no further than the RFP released by Amazon in September.

 

Denver and Amazon: is it a match?

Denver and Amazon: is it a match?

On Amazon’s wish list? A host of traits that require public investment:

  • A location with the potential to attract and retain strong technical talent.
  • Proximity to an international airport.
  • Proximity to major highways. 
  • Access to mass transit.
  • Cultural fit, including a diverse population and excellent institutions of higher education
  • Community/Quality of Life: We want to invest in a community where our employees will enjoy living, recreational opportunities, educational opportunities, and an overall high quality of life.”

Denver has an international airport, several universities, and it’s a beautiful place to live. But from a fiscal perspective, Colorado’s antiquated tax laws could make Denver a poor candidate for Amazon’s HQ2. The issue is not that Colorado can’t top New Jersey’s $7 billion offer. Amazon wants a community with strong public investments, and there is no way to hide Colorado’s dismal numbers.

If Amazon’s HQ2 team looks at the data, they’ll find Colorado ranks 42nd in the U.S. in per-pupil spending on K-12 education. That’s down from 26th in the nation in 1991, the year before TABOR passed and restricted the state’s ability to fund crucial public investments. Setting up shop near some of the country’s most inadequately-funded schools could put a serious damper on Amazon’s ability to recruit top talent. Higher education budgets in Colorado are routinely slashed because the state lacks revenue, which deprives our public universities of competitive resources and makes tuition prohibitively expensive.

3-2

Because the legislature can’t raise revenue, Colorado also lags behind in transit funding: 70% of the roads in our state are in poor or mediocre condition, which costs drivers more than $1 billion in extra repairs and maintenance each year. Colorado’s population is ten times the size of Wyoming’s, but we spend only twice as much on transportation. Front Range residents who want to take advantage of Colorado’s natural beauty usually find themselves stuck in trafficand lack of funding means Colorado can’t keep up with transit needs.

Colorado’s tax laws are antiquated, and they may make our state less appealing to employers like Amazon. What’s more, TABOR’s outdated restrictions limit the benefits of an Amazon move to Colorado. Amazon claims to have invested $38 billion in Seattle between 2010 and 2016. That pitch is exciting for prospective HQ2 cities because it means more jobs and highly paid workers, but also more revenue for the city itself. That means more revenue to fund stronger public investment: better roads, good schools, higher pay for teachers and firefighters. Yet, in Colorado, those benefits are cappedliterallyby TABOR. You can read more about why TABOR’s economic growth formula is a bad one here, but the bottom line is that only a small slice of Amazon revenue could be used for public investment. Much of it would be refunded to taxpayers, and chances are those TABOR rebates won’t even cover the extra $287 Colorado motorists sink into vehicle maintenance every year because of poor road conditions. 

Post-Amazon plan to afford Denver housing: rent this tiny home with 6 of your closest friends

Post-Amazon plan to afford Denver housing: rent this tiny home with six of your closest friends

Amazon also promises to create 50,000 jobs with an average salary of $100,000. To the increasing number of people concerned about housing affordability, that sounds less like a sunny prediction and more like a threat. Colorado is already the 11th most expensive state for housing, and Denver is in the midst of a housing crisis. The most recent analysis shows Metro Denver’s vacancy rate is at 5.7%, compared to 7% nationally. Average rent in Denver is $1,382/month. Denver residents must earn at least $25/hour to afford a two bedroom apartment, meaning minimum wage workers need the equivalent of three full time jobs. Amazon’s presence would put further pressure on the Denver housing market, but Colorado still won’t have the funds for effective affordable housing programs.

We love living in Colorado, and we can’t blame people for wanting to move here. But our outdated tax laws keep us from being able to share resources, prosperity, and opportunity among all Coloradans. TABOR restricts Colorado’s ability to be competitive and invest in projects that benefit everyone. Amazon is just one of many examples. Maybe we’ll have a shot at HQ3?

New report: Trickle-down Dries Up

Posted October 26, 2017 by Ali Mickelson

By Ali Mickelson

“Trickle-down” economics is an archaic theory that suggests that providing tax cuts for the wealthy eventually seeps down to middle-class Americans and creates jobs, raises wages and increases economic development. Despite extensive evidence that this type of tax policy is unsuccessful, conservative lawmakers are still advocating for the elimination or reduction in income individual income taxes as a way to spur economic growth.

The most recent and visible example of the failure of trickle-down policies occurred in the Kansas, where Governor Sam Brownback dramatically reduced personal income tax rates, claiming that these changes would “act like a shot of adrenaline into the heart of the Kansas economy.”

Unfortunately, the opposite was true. Promises of immediate economic improvement failed to materialize and state revenues plummeted, resulting in cuts to services, delays to road projects, and underfunding in schools. Recognizing that the tax cuts had created a financial and budget crisis, a group of bipartisan lawmakers reversed the tax cuts earlier this year.

A new analysis by the Institute on Taxation and Economic Policy (ITEP) further proves that tax cuts aren’t the solution to thriving economies. The report, titled “Trickle-Down Dries Up” finds that states with the highest income tax rates actually experience higher economic growth than states without individual income taxes. Furthermore, states with higher individual income tax rates have higher income growth rates, increased employment and fairer tax systems.

ITEP picture 1The study looks at the nine states with the highest top marginal income tax rates and compares them to the states with no personal income taxes. Examining ten years of data shows that states levying the nation’s highest income tax rates performed better in economic growth rates, per capita and disposable income growth and employment than states without an income tax.

The analysis also shows that states without personal income taxes rely more heavily on revenue from regressive sales and excise taxes, which has resulted in higher tax rates for low-income families, and lower overall tax rates on the wealthy.

ITEP notes that while tax policies contribute to economic growth, states also need tax revenue to provide good public schools and to support public health, public safety and infrastructure. All of these things fuel economic growth. Cutting personal income taxes is an ineffective and single-minded approach to a complex issue.

Carl Davis, director of research and author of the report summarizes the findings, stating “while proponents of income tax cuts often point to the states without personal income taxes as a model to strive for, these states have actually been less successful in fostering economic growth than states with relatively high-income taxes. The track record of states not levying income taxes suggests that the rhetoric of economy-boosting income tax cuts does not match the reality.”

For more information and to read the full report, click here: https://itep.org/trickle-down-dries-up/

Poverty, Race, and Population Boom: 5 Census Takeaways for Colorado

Posted October 25, 2017 by Caitlin Schneider

By Elizabeth Cheever and Michael Wu

The Census Bureau released state-level economic and poverty numbers for 2016 last month. Colorado’s data follow the trends seen nationwide: increases in household income, decreases in poverty, and more people with health insurance. At CFI, we can’t let a juicy set of numbers go by without crunching them, so here are five takeaways from the latest Colorado Census data.

This analysis includes a sample of counties across Colorado. These counties were selected to show a broad range of economic and demographic factors.

1. The basics have improved since the recession, but too many people still live in poverty.

In 2016, median household income in Colorado was $65,685. The overall poverty rate in the state is 11%, and the child poverty rate in Colorado is 13.1%. Broadly speaking, that means Colorado is doing better than it was before the great recession. In 2007, the overall poverty rate was 12% and the child poverty rate was 15.9%. Below you’ll see it’s a little more complicated than that: counties along the Front Range and I-70 corridor have bounced back, but many rural areas are struggling. And let’s not forget: the 2016 poverty rate means nearly 600,000 state residents – including 162,000 children – live below the poverty line in our state.

 

2. The Affordable Care Act (ACA) and Medicaid expansion have helped thousands of Coloradans get health care.

The numbers speak for themselves: expanding Medicaid in 2014 made it possible for hundreds of thousands of Coloradans to get access to health care. Nearly 1.4 million people in our state are covered by Medicaid, and 40% of children in Colorado rely on Medicaid for medical care.

Health Coverage #2

People in counties with high median incomes are still more likely to be insured, but the ACA has helped shrink that gap. Living in poverty means basic needs often go unmet. Under the ACA, health insurance is one less thing struggling families need to worry about.

 

3.  A population boom and a more diverse state affect who thrives in our economy.

Colorado’s population rose by more than half a million, or 14%, between 2007 and 2016. Along with the major population influx, our state’s racial makeup continues to diversify—a trend that is expected to continue. White Coloradans made up 70% of the population in 2016 (compared to 72% in 2007) and Latinos are 22% of Coloradans in the most recent census, up from 20%. More than ever, it is crucial that our economy works for everyone. The children in Colorado’s schools today will be the workers and taxpayers supporting our aging population in the future. Investing in children of color, making sure they have access to quality education and economic opportunity, is an investment in prosperity across the state.

Boom in Population #3

4.  Colorado’s county poverty numbers tell a more complex story.

Comparing poverty rates among counties reveals significant differences in prosperity and economic well-being across Colorado. Examining county-level data is important, because state totals can obscure the struggles of rural communities. All Coloradans have an interest in seeing statewide economic prosperity, not just concentrated wealth in certain areas.

#4

5.  Racial inequality persists throughout the state.

#5a

The census data show stark racial inequality in Colorado. People of color face significant barriers on the road to economic security. Latinos in our state are more than twice as likely as whites to be poor, and nearly a quarter of Native Americans live below the poverty line. When opportunity is limited for any Coloradan, our state economy misses out on prosperity, innovation, and growth.

#5b

Forecast Five: September 2017 Revenue Estimates

Posted September 20, 2017 by Chris Stiffler

1. The devil is in the details

The budget that legislators will begin writing this January (FY2018-19) is projected to be $666 million (or 6 percent) larger than this year’s budget (FY2017-19).  Not all the increased revenue is from economic growth, as $116 million comes from accounting adjustments in this year’s budget, resulting in more money in carryover from FY 16-17.  About $350 million of the increase will be needed to keep pace with growth in students and growth in mandated Medicaid expenses.

giphy-downsized

 

 

 

 

 

 

 

2. SB17-267 created some flexibility for the General Fund

SB17-267, which exempted the Hospital Provider Fee revenue from the TABOR revenue cap, reduced the FY 2018-19 TABOR rebate obligation by $180 million making that money available for General Fund investments. With the passage of SB17-267, there are no TABOR rebates projected though FY2019-20.

3. Colorado’s tax code is amplifying the urban-rural divide

Many rural areas in Colorado aren’t benefiting from the same rapid growth happening in the Front Range. Rural districts have a harder time funding local governments and schools because their property value isn’t growing like it is in the metro area. The Gallagher amendment, a constitutional component of our tax code, aggravated the problem by requiring an automatic drop in the state residential assessment rate (the portion of housing property that is subject to property tax) from 7.96% to the 7.2%.  The rapid growth in property value around Denver is constraining local governments whose area hasn’t seen the same growth.

4. Colorado’s economy is booming, but wage growth hasn’t kept up

Unemployment in Colorado is 2.4 percent—2 percent lower than the national average and a clear sign of our state’s strong labor market. Colorado workers are in high demand, but salaries and wages aren’t growing as expected. Employers have not yet started to increase wages, despite huge gains in profit. Corporate profits in the U.S. are at historic highs while employee compensation as a portion of the economy is at a historic low. Jobs are more readily available than ever in the Front Range, but a high cost of living and stagnant wages mean making ends meet is still a challenge for many Coloradans.

 

5. The aging population continues to have a larger and larger impact on the state budget

200w_dAs more Baby Boomers continue to age and leave the workforce, Colorado’s budgetary and employment landscapes change. The Medicaid caseload increases, which means more spending just to maintain current levels of service. Costs associated with an aging population mean more state revenue is spoken for, and that $666 million shrinks. The cost of Colorado’s homestead property tax exemption alone, a property tax break to seniors, is growing at 8.5% from FY 17-18 to FY 18-19, creating a General Fund obligation of $145 million for next year. Aging demographics may also explain some of the sluggish wage growth in Colorado. Older, higher-paid employees are leaving the workforce and being replaced by an influx of younger, lower-wage workers. This trend can contribute to lower average wages and constrain growth.

New Blog Series: The Real Path to State Prosperity

Posted September 11, 2017 by Esther Turcios

prosperity

Business rankings have long been used as a method to examine which states are implementing policies that court and help thriving businesses and ultimately the state’s overall economic prosperity. Chambers of Commerce, elected offiicials, and economic development agencies often use such rankings to tout their states. But do these rankings truly reflect what helps workers, business, and state economies flourish? We’re not so sure.

Two large proponents of these rankings are the Tax Foundation and the American Legislative Exchange Council (ALEC). For example, ALEC’s Rich States, Poor States is an economic outlook ranking that ranks states based on 15 state policy variables. The overall argument in their reports is that states that tax and spend less see higher growth rates than do states that tax and spend more. However, relying solely on a state’s tax system is a poor indicator of whether or not businesses will locate in a specific state and will therefore help a state’s economy prosper. In fact, evidence shows productivity of workers and local economies, investments in human and physical capital, and many other factors play a much bigger role in leading states to a prosperous economy.

A well known example of a tax cut experiment gone wrong came out of our neighboring state, Kansas. In 2012, Governor Sam Brownback signed legislation which sharply cut income taxes across the board that leaned towards the wealthy, and that ultimately cut the state budget by 13 percent. The Brownback administration, much like ALEC members, believed that drastic cuts to state income taxes would generate thousands of jobs and encourage the growth of small businesses. However, not only did Kansas not see a growth in its economy, but its bond rating went down and they cut funding for vital services and programs including education.  Five years later, the experiment proved to be such a failure that the Republican-lead Kansas legislature voted to raise taxes overriding a Governor veto. Kansas has since served as a prime example of the negative effects of supply-side tax cuts as a method for measuring economic prosperity for the rest of the nation.

As Colorado enters its third longest economic expansion since 1900 and our unemployment rate – 2.3% – is at an all-time low (the lowest in the country to be exact), it is a good time to talk about what has really led our state to this time of economic prosperity. In particular, what strategies have worked, what policies have been passed, and/or what programs have been implemented that have allowed Colorado’s economy to continue to grow since 2009.

That is why we are creating a new blog series titled the “Real Path to State Prosperity.”  This six part series, beginning in October, will focus on six distinct areas that create long term shared prosperity, not just in Colorado but in all states. Within each blog we will highlight our work, as well as the work of our partner organizations whose commitment to economic prosperity has created a thriving Colorado.

Using framework from Peter Fisher’s, Grading the States, Business Climate Ranking and the Real Path to Prosperity, which is dedicated to explaining how states can truly promote long term growth and broadly shared prosperity, we will focus on the following topics:

  1. The Importance of Productivity, Wages, and Shared Prosperity
  2. How Education & Job Training Boost Productivity
  3. Investments in Infrastructure Bring High Returns
  4. Healthy Workers Are More Productive
  5. Innovation and Entrepreneurial Activity are Key to Economic Growth
  6. Making Sure Productivity Gains Lead to Higher Wages

It is our hope that the “Real Path to State Prosperity” blog series will provide us an opportunity to rexamine and redefine what investments in our communities actually lead to thriving businesses and broadly shared economic prosperity for all Coloradans, as well highlight the progress we’ve made in Colorado.

Stay tuned for our first report coming in October.  Follow us on Facebook or subscribe to our email list to receive updates about the blog as soon as it becomes available.

A Look at Low-Wage Employment in Colorado

Posted September 4, 2017 by Caitlin Schneider

As Colorado celebrates Labor Day and the important progress made over time for working families here and throughout the country, it’s worth taking a fresh look at a central factor in employment growth and the economic well-being of workers: wages. More specifically, there’s a persistent need to examine the share of low-wage jobs in our economy, who holds those jobs, how Colorado compares to other states, and how low-wage employment affects workers’ ability to afford basic needs like housing.

As economic policy discussions inevitably turn to job and wage growth, this type of analysis can shed light on what trends are actually emerging with employment, what communities are most affected by low wages, and what that might mean over time for economic growth and equality. Rather than rely on assumptions, myths, and stereotypes to inform policy, we look to the data and facts.

In Colorado, the data and facts point to a few key insights. The first is that low-wage earners have regained some of what was lost since the Great Recession. However, these gains are a fraction of what the wealthiest 1% gained since then. The second is that women, Hispanics, and African-Americans are likelier to hold low-wage jobs, which reinforces the need to address systemic barriers such as racial discrimination, gender bias, and persistent pay gaps when considering economic and wage policies. The third is that while the portion of low-wage jobs is smaller in Colorado than in other states, the share of low-wage jobs has grown over the last 15 years. And the fourth is that stagnation in low-wage job is putting Colorado workers at a severe disadvantage when it comes to affordability of basic needs like housing.

While workers have made considerable progress over time across many indicators, the facts and data around low-wage jobs are essential to understand and critical in shaping policy decisions going forward. Because, while it’s important to celebrate past progress, there is no guarantee of future success without a fuller comprehension of how we got here.

Key Findings

  • The bottom 20 percent of wage earners have seen their wages rebound in the last two years, regaining the loss from the Great Recession, though these gains are far outpaced by income growth for the richest 1%.
  • Women, Hispanics, and African-Americans are likelier to hold low-wage jobs than other demographic groups.
  • The portion of Colorado’s total jobs that are classified as “low wage” is smaller than most states, particularly when comparing cost of living and wages across states.
  • For some of the largest low wage jobs, the cost of housing consumes more than half of the paycheck of those workers particularly in the Denver Metro Area and resort communities.

Read CFI’s full report here

President’s Paid Leave Proposal Doesn’t Do Enough For Working Families

Posted July 27, 2017 by Esther Turcios

By Esther Turcios, CFI Policy Analyst

3It goes without saying that a federal paid family leave program is long overdue. Too many low-income families find themselves between a rock and a hard place, having to decide between losing their jobs or taking unpaid time off to care for themselves, a new child or an ill family member. So, when President Trump rolled out his 2018 budget, I was quite surprised to see a proposal for a paid parental leave program, given his huge cuts to many other programs that support working families. Clearly, I needed to break down his budget to see exactly what he was proposing.

Currently, under the federal Family and Medical Leave Act (FMLA) workers are provided with job-protected unpaid leave for qualified medical and family reasons. But, this is available to less than fifty percent of workers, most of whom cannot afford to take it, according to the National Partnership for Women & Families. In Colorado, sixty percent of employees don’t have access to FMLA. The unfortunate reality is that parents, most notably women, end up leaving their jobs to care for their families.

At the moment, five states (California, New Jersey, Rhode Island, New York, and Washington) and D.C have enacted statewide paid leave insurance programs. These states provide great models of paid family leave. A 2011 report revealed that after six years of implementing a state-wide program, both employers and employees in California reported positive effects of paid leave. During the 2017 legislative session, CFI worked with coalition partner, 9to5, to sponsor HB 17-1307, which would have created a statewide family and medical leave insurance program, providing partial wage replacement for employees who need to care for a new child, themselves or an ill family member. The bill passed out of a chamber for the first time in its history, but unfortunately it died in the Senate State Affairs committee.

Last month first daughter, Ivanka Trump, wrote an op-ed for the Wall Street Journal in which she showed her support for paid leave, stating that, “Providing a national guaranteed paid-leave program — with a reasonable time limit and benefit cap — isn’t an entitlement, it’s an investment in America’s working families.” She further supported her stance by highlighting her father’s budget proposal in which he included a national paid leave program.

So, who would be covered under this proposed program? How much would it cost? How much would families receive? Well according to Analytical Perspectives, an analysis of the president’s proposed budget, the paid parental leave program is a benefit within the Unemployment Insurance (UI) program that would provide up to 6 weeks of paid leave to mothers, fathers, and adoptive parents. The benefit is set to cost about $25 billion over the next 10 years according to a recent Vox article, which would be paid for by the states. Under the plan, states have broad power over the design and financing of the program, but they would be required to maintain a certain amount in their unemployment trust funds. This would mean that states below the minimum standard, would have to increase their UI premiums to build up their funds.

The president also included a bundle of reforms that, apparently, will help states fund this program. These reforms include eliminating improper unemployment payments; mandatory funding for reemployment services to get people back to work more quickly; and closing a loophole that currently allows individuals to receive both UI and Disability Insurance (DI) benefits for the same period of joblessness, forcing them to choose between the two programs.

However, still unanswered is how much states would have to raise unemployment insurance premiums, clearly placing the burden of cost on state governments. There is also no way of knowing how much families will receive and whether that amount will be enough for parents to take time off. It is particularly important to point out how the program neglects to include paid time off so employees can care for themselves or a family member when they are ill.

I agree with Ivanka Trump’s statement that a paid family leave program is an investment in America’s working families. However, it is ironic that the rest of the President’s budget also calls for $1.9 trillion in health care cuts, $193 billion in SNAP cuts, and $400 billion in cuts to discretionary programs for low-and moderate-income people, according to the Center on Budget and Policy Priorities. In total, this would amount to $2.5 trillion in cuts to programs that working families rely on.

Paid time off has shown to produce countless benefits. From improving health outcomes for children, ill adults and seniors, to strengthening a family’s economic stability and, ultimately, creating a stronger national economy. Support from any president for paid federal leave is welcomed, but this proposed program raises more unanswered questions than solutions. This coupled with the president’s cuts to SNAP, programs that reduce funding for job training and education, the Earned Income Tax Credit and the Child Tax Credit, are clear indications that President Trump’s proposed paid leave program will not benefit families. Instead, taken together with his other proposed budget cuts, the plan will have dire consequences for low and moderate-income families.

The True Cost of Medicaid Cuts: Hope’s Story

Posted July 19, 2017 by Dominica Gonzalez

“I’m not helpless, but I need help.”

Hope Krause was born with cerebral palsy. She depends on Medicaid and other state programs to help her pay for her medical necessities, like her caregiver and wheelchair. If her Medicaid allotment were to be cut, she would not be able to afford to live independently. She is worried that she would have to go to cheap nursing home.

Her condition makes her unable to move her legs on her own and impairs her body movement. Her caretaker helps her adjust her body when she requests it so that she can manage her pain. Without this proper attention, she will need to start taking strong painkillers regularly and move out of her own home into a nursing home. In a nursing home, Hope would have to wait for help from attendants who are juggling several patients. No human being wants to wait around in a dirty Depend.

Her caregiver and other state-funded services allow Hope to be active in her community. She is the Colorado Cross-Disability Coalition Coordinator and is an advocate for people with disabilities in Ft Morgan, Brush, and Sterling. As an advocate for people with disabilities, she empowers people and helps them navigate services so that they can live more fulfilling lives. But with Medicaid cuts on the table, Hope is also worried about her ability to live the life she wants to live.

There have been several ‘repeal and replace’ health care bills in 2017, and they all impose a per capita cap on Medicaid spending. Research shows that a per capita cap will not be able to keep up with increasing healthcare costs, reducing the federal dollars that go to states to provide care for people like Hope. States depend on these federal dollars to fund Medicaid, Medicare, and other state medical services; with a per capita cap, states will be forced to choose between cutting schools and roads, or cutting services, like in home care and lifesaving prescription drug coverage for the elderly and disabled.

Call you Senators and Representatives and tell them that you want people who rely on Medicaid to live healthy and humane lives!

Video produced by Dominica Gonzalez

Before you graduate, understand graduation

Posted June 28, 2017 by Chris Stiffler

By Chris Stiffler  

CFI Economist

When I lecture on taxes to college students I’m always surprised by how little students understand taxes, particularly how graduated, or progressive, income tax structures work. To see what I mean, consider the following question:  Pretend that somewhere, there is a graduated income tax structure as follows:

tax blog chart

So, under this system, if you made $25, how much would you pay in income taxes?

Most students say, “Well, $25 multiplied by 5 percent is $1.25.” And most students are wrong.

This happens because they haven’t learned the distinction between “marginal tax rates” and “effective tax rates.” They generally assume that all income is taxed at the top rate. This makes sense because a lot of people always tell of the story of the individual who earned more this year and got “bumped into a higher tax bracket.” But this doesn’t mean that all income is now taxed at that higher rate.

The correct answer is $0.95. Here’s the math  black board tax

They paid 3 percent on the first $10 then 4 percent on the next $10 then 5 percent on the last $5. Yes, that person paid 5 percent on the last dollar earned (the marginal rate), but their effective tax rate was 3.8 percent.

tax blog blackboard

The federal income tax is a graduated structure, and most states also utilize a graduated tax code. But Colorado is one of the few states with a flat income tax rate — a flat 4.63 percent. This means that every taxpayer in Colorado pays the same rate, 4.63 percent, on every dollar they earn.  Colorado used to have a graduated income tax structure before 1986.

To teach students about graduated rates, I have them calculate how much extra someone in Colorado would pay if Colorado had the same tax brackets as Montana. Like the majority of states, Montana has a graduated income tax structure. The first $2,900 dollars earned is taxed at 1 percent. Income above $2,900 and below $5,200 is taxed at 2 percent. Income above $5,200 and below $7,900 is taxed at 3 percent. Income above $7,900 and below $10,600 is taxed at 4 percent. Income between $10,600 and $13,600 is taxed at 5 percent, and income between $13,600 and $17,600 at 6 percent. Any income above $17,600 is taxed at 6.9 percent.

Colorado would generate $2.5 billion more in income taxes under Montana’s income tax rates. That would increase income tax collections by a third.  The average Colorado family would end up paying $350 more in income taxes annually under Montana’s income tax structure. Such a structure would generate a lot more income from upper income earners and give a tax break to lower income Coloradans, who already pay a significantly greater portion of their earnings in taxes when you account for sales, gasoline and other consumption-based taxes.

For example, a Coloradan whose income puts them in the top 1 percent of earners in the state would end up paying $30,000 more annually while a Colorado household making $30,000 would see its income taxes drop by $60 a year.

If Colorado adopted Montana’s graduated income tax structure, 25 percent of taxpayers would see their income taxes fall while income taxes on upper income Coloradans would increase.

After this exercise, students are normally curious to know what Colorado would buy if the state budget had an additional $2.5 billion. Those students also have suggestions on what the revenue should be used for (higher education and roads are usually on top of the list). If you have the same curiosity, you can build your own state budget here:

https://www.greateducation.org/advocates-corner/mission-possible/

Tax Breaks for Working Families Face Dire Cuts in President’s Proposed Budget

Posted June 27, 2017 by Carol Hedges

By Esther Turcios

 

As Americans focus attention on the proposed cuts and changes to our health care system, less attention has been given to other changes to our tax system that will hit working families hard. incomeineq

As two of the best mechanisms to lift individuals and families out of poverty, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are facing large cuts and changes under the president’s proposed budget.

The federal EITC and CTC are refundable tax credits that support low- to moderate-income individuals and families. In 2014, 377,000 Colorado households benefited from the federal EITC, and in 2015, the state EITC went into effect for the first time since 2001.

Throughout the years these programs have supplemented the wages of many low-wage workers across the nation. According to the Center on Budget and Policy Priorities, in 2015, these programs helped lift a total of 9.3 million people out of poverty, 4.9 million of who were children. The extra support has allowed many individuals and families to pay for things such as home repairs or vehicle maintenance, while it also helps to pay for educational opportunities, ultimately increasing people’s employability and earning power.

Unfortunately, the president’s proposed budget includes a $40 billion reduction to the Earned Income and Child Tax Credits over the next decade, as reported by the Center on Budget and Policy Priorities. This is in addition to the president’s proposed cuts to SNAP and TANF and in addition to the House-passed American Health Care Act to repeal the Affordable Care Act, which also supports working families across the country.

Under the proposed changes to the child care and earned income credits, in order for taxpayers to claim these tax credits, all adults in the household would be required to provide a Social Security number (SSN) that is valid for work. Under current law, people who don’t have SSNs that are valid for work can claim the CTC and its refundable portion as long as they have an Individual Taxpayer Identification Number, and families can claim the EITC if one adult has a Social Security number, but not every adult in the household must have one.

So, what exactly does this mean? According to the president’s “2018 Major Savings and Reforms” document, in order to claim the EITC, the CTC, taxpayers, their spouses, and all qualifying children (child, stepchild, foster child, sibling or step-sibling or grandchild) must have Social Security numbers that are valid for work. This will effectively exclude millions of undocumented individuals and families who file taxes using their Individual Taxpayer Identification Number. These are folks who work, pay sales taxes and property taxes, and contribute to our economy but who don’t get to reap the same benefits other taxpayers do. This also leaves approximately 5 million children of undocumented parents, the vast majority of these children who are U.S. citizens, without CTC benefits as found by the Center for Law and Social Policy.

Research shows that unlike other programs intended to assist low- and moderate-income communities, the EITC and CTC are better in the long run at lifting people out of poverty and reducing poverty rates than programs such as SNAP and TANF. Clearly, the Earned Income Tax Credit and Child Tax Credit are programs that are crucial for both low- and moderate-income individuals, families and our economy.

This change, and many other changes included in the president’s budget are harmful to Colorado communities, especially those with undocumented populations.

 

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