Opinion | Paul Olson: What is the best tax rate? It’s complicated
A sense of control is a key factor in our daily happiness. This November Colorado voters will have a nice opportunity to gain a little control over their taxes thanks to a ballot measure which could lower the state income tax rate from 4.55% to 4.4%. Should you vote yes to the reduction? This is not a trick question.
According to the Colorado State Legislature if the measure passes, 75% of taxpayers would receive a tax cut of $63 or less in 2022 and subsequent years. It’s not much, but many people would appreciate a little extra spending money. On the downside it is estimated that this small reduction in the tax rate will result in over $400 million less revenue each year going into the state budget. Not pocket change. Closing this budget gap will require trimming the budgets of many state departments. Local governments and many individuals could feel the impact of less funding for various public services.
How would this tax cut affect Summit County? Lower taxes means more money in the pockets of Front Rangers to spend on skiing, lodging and dining in the mountains. A lower tax rate would attract new residents to Colorado, boosting the economy of the county and state. The lower tax rate would give Summit business operators the potential for a greater return on their efforts thus helping to boost local investment. On the negative side, less revenue for the state budget could affect the amount of state support for education, health care and other services resulting in Summit County residents needing to pay a greater share through property taxes.
In other tax news, Heidi Ganahl, the Republican nominee for Colorado governor running against Jared Polis, recently proposed eliminating income tax in our state. She has not yet disclosed her plan for accomplishing this huge change other than saying she would tighten budgets and get rid of fraud and waste. Governor Polis agrees with this concept saying that it would be ideal to have no income tax as a tax on income discourages productivity and growth.
Eliminating Colorado’s income tax would be a daring step but we can gain some insight from the other states who are making it work. Nine states (Alaska, Florida, Nevada, New Hampshire South Dakota, Texas, Tennessee, Washington and Wyoming) do not tax individual wages. In favor of this tax strategy an analysis by the Tax Foundation showed that over the past decade the economies of these states grew 56% faster than the national state average. On the negative side, these states generally have much higher sales, gas, and property taxes than Colorado. Washington has a gas tax of 49.4 cents per gallon versus 22 cents for Colorado. All nine states have higher property tax rates than Colorado, with Texas and New Hampshire at more than triple our rate. Florida, Texas and Tennessee have sales tax at more than double Colorado’s 2.9% rate.
It is tempting to consider the benefits of Colorado becoming a no income tax state, but many people will prefer to stick with the devil they know. Businesses and individuals like stability so they can make long term plans and have more confidence in their investments. Could we have faith in the Colorado legislature to put together a new tax system without various special interest groups making a mess of the plan? If our legislature started discussions on eliminating income tax, everyone would start doing the math on how much more they would have to pay in sales and property tax. Would burdening low wage workers with higher sales tax on necessities be a drag on the state’s economy? Would homeowners and business operators rebel against substantially higher property taxes? Or would the boost to everyone’s take-home pay and the potential for greater economic growth make people accepting of increases for other taxes?
Our country’s founders saw no need for income tax, so our nation relied on tariffs on imported goods and excise taxes on items like whiskey to pay the federal bills until the costly Civil War required imposing an income tax. In 1895 the U.S. Supreme Court ruled that an income tax was unconstitutional. Most Americans were in favor of the Sixteenth Amendment allowing for an income tax when it passed in 1913 since it was only aimed at rich people. Colorado enacted its income tax in 1937. People have a great dislike for taxes but they also have quite a demand for an increasing number of public services that must be paid for and income taxes have come to supply the lion’s share of federal revenue and over half of Colorado’s state budget.
U.S. Supreme Court Justice Oliver Wendell Holmes Jr. said, “Taxes are the price we pay for a civilized society.” We live in a wonderful state and have a great country and the taxes we pay are an important factor in our successful, civilized society. Let’s hope Coloradans can find the right balance for taxation, not over-taxing which discourages productivity and not under-taxing which fails to fund necessary public services.
Paul Olson’s column “A Friendly Conservative” publishes biweekly on Tuesdays in the Summit Daily News. Olson has lived in Breckenridge since 1995. Semiretired, he works at REI in Dillon and enjoys snowboarding, Nordic skiing and hiking. Contact him at firstname.lastname@example.org.
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