Opinion | Scott M. Estill: Eliminate the Colorado state income tax?
Jared Polis won the race for Colorado governor back in 2018 with 53% of the vote, good for a 10 point margin over his Republican opponent. If the polls are accurate for the upcoming November election, he will again win with about a 10 point advantage. His opponent this year is Heidi Ganahl, a Republican who checks most of the boxes of her fellow party members. As far as I can tell, there is no mention of any of the far-right election fraud claims on her website and The Donald is nowhere in sight. Just a straightforward law and order, pro-life, job creation sort of candidate.
Not receiving much attention, however, is her plan to abolish the state income tax for individuals (but not businesses) in Colorado. Surprisingly, Polis has also expressed enthusiasm for this proposition. According to Ganahl, she will pay for this by reducing the size of Colorado’s state government by 10% in each of her four years if elected. How would this play out?
The vast majority of State revenue in 2021 came from the federal government (44%) and cash operations (31%). The federal funds are earmarked for health care, labor and employment, education and other specifically targeted state programs, while the cash from operations involves college tuition, fees from health care and other services, and taxes on marijuana and the lottery. The remaining 25% (about $13.1 billion) of the state’s revenues come from income, sales and other taxes.
For the last fiscal year, Colorado taxed its citizens to the tune of about $9.5 billion in income taxes. This is about 68% of the total general fund tax revenues for 2021. Colorado spends most of this $13.1 billion on the “big six”: K-12 education (32.4%), health care (29.4%), higher education (9.8%), human services (7.6%), corrections (6.5%) and the court system (4.8%).
Here’s the problem: Under the Ganahl plan, there would be a 10% reduction in the size of government, which would mean that instead of spending $13.1 billion on the “big six”, she would spend $11.8 billion, $10.6 billion, $9.5 billion and $8.6 billion during her four years in office. Yet, without any individual income tax revenues, there would be only $3.6 billion each year to pay for these government expenses. It is not clear how Ganahl intended to fund these multi-billion deficits, as Colorado requires a balanced budget.
It is certainly possible to enact her plan, as there are currently nine states that no longer impose a state income tax. How do they do it? They tax other things, such as oil and gas (Alaska, Texas and Wyoming), gambling (Nevada), and combinations of higher sales, property and excise taxes.
Her first option would be raising taxes on other items to raise the revenues necessary to enact her budget-reduction plan. For her first year, this would mean raising $8.2 billion from other sources. This would likely be done via a higher corporate income tax rate, along with higher sales and/or property taxes. These higher taxes would lead to job reductions for businesses and would simply shift the income tax savings to higher taxes on the homes we live in and goods we purchase. A tax increase of this size would undermine nearly every one of the policies that she clearly promotes on her website and thus cannot be the solution to her plan.
The other option is to reduce the expenditures by more than 10% every year. Without a tax increase and with a complete elimination of the individual income tax, there would be a 68% reduction needed to balance the budget. While there would be no winners from a government perspective, all departments would be major losers. Would Colorado taxpayers be willing to forgo these public benefits in the name of a reduced overall tax burden?
How would Ganahl’s other plans, including increased funding for law enforcement, mental health and fixing roads to name a few, reconcile with the lack of any actual funding for anything new without further depleting the budgets of the “big six”? Perhaps she is advocating for the privatization of the public school system or to remove health care for those who cannot afford it, but I doubt it.
Instead, without either of the two choices being viable, it is likely that she will realize that any elimination will need to occur as a series of reductions. In the meantime, it would be nice to hear from the Polis and Ganahl camps as to how they would begin to eliminate the state income taxes and who would pay for the removal of revenue.
In this era of extreme polarization on every issue imaginable, it is comforting to find something that the two major party candidates for governor agree on. According to Polis: “When you tax something, you penalize it.” I agree. Perhaps the parties can actually cross over into opposing territory after the November election and actually make Colorado a more tax-friendly state to those of us who call this paradise home.
Scott M. Estill’s column “Challenges, Choices, Changes” publishes biweekly on Thursdays in the Summit Daily News. Estill is an attorney, author, and public speaker who lives in Dillon when not traveling or attending to legal matters in Denver. Contact him at firstname.lastname@example.org.
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