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Inside the Ballot Box: Reducing tax rate will do great harm to state economy

Proposition 116: State income tax rate reduction has qualified for the ballot.
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Photo by Marcia Martin

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Proposition 306: State income tax rate reduction has qualified for the ballot.

What does this initiative do?

If passed, Proposition 116 would reduce Colorado’s flat income tax rate from 4.63% of an individual’s federal taxable Income to only 4.55%. The authors of the measure say its purpose is to create an economic stimulus to help businesses and individuals recover from the pandemic-caused recession by putting a little extra money into their pockets.  That sounds good, right? Well, it’s not. It’s so bad that I’m saying so right here up front, just in case something prevents you from getting to the end of this column. Vote no if you care at all about the Colorado way of life.

 According to Wikipedia, "taxes other than the [progressive federal] income tax (for example, taxes on sales and payrolls) tend to be regressive. Hence, making the income tax flat could result in a regressive overall tax structure. Under such a structure, those with lower incomes tend to pay a higher proportion of their income in total taxes than the affluent do."  

A cut to Colorado’s flat income tax basically means a cut benefits those with the highest taxable incomes the most. The $40 or so that will end up in the average taxpayer’s pocket at the end of the year is nothing compared to the hole the accumulated loss of tax revenue will blow in the Colorado state budget. But a largish business could end up netting many thousands. And this cut doesn’t pay any attention at all to whether the business really needs a stimulus. 

Think about it: a high-tech business whose workers spend their day using computers and the internet is not really affected. It may have its employees work from home and actually save in operating costs. A collection agency in Longmont actually saw its receipts increase in the early days of the pandemic, apparently because its workers were more productive working from home, without the distraction of coworkers and coffee breaks. So, how do you feel about voting for a big fat Christmas present for those guys? 

On the other hand, restaurants, notoriously the worst-impacted service sector, could really use a boost. They spent months closed or trying to hang on to their clientele by hobbling along on delivery and curbside pickup. The manager of my favorite neighborhood place told me that receipts were down by 60%. That place won’t see any return from the “stimulus” because it is losing money. It won’t pay any taxes at all, rate reduction or not.

This is a Jon Caldara stimulus: all the funds go where they are not needed, and none where they are needed the most. Read on and learn why it’s on the ballot at all.

Who is Jon Caldara?

Jon Caldara is the president of the Independence Institute, which bills itself as “Colorado’s free-market think-tank.” Despite being the wildest-eyed of anti-state libertarians, he’s had a considerable political career. He was elected to the Regional Transportation District board in 1994, and was later chairman of the board. It was Caldara’s only opportunity to fight government from within as an elected official, but given the level of dysfunction and failure RTD has enjoyed ever since, he appears to have been pretty effective.

Most of his activities since have been fighting from outside, through the think tank, through the media, and by putting stink bombs on the Colorado ballot, manipulating the electorate to vote against their best interest. He’s a talk show host for KOA and KHOW radio, and has a current affairs talk show on public TV. 

But Caldara’s big talent is manipulating the voters to keep government as dysfunctional as possible.

Ballot manipulation

It’s a well-known voter behavior to vote no when they don’t understand an issue. So an effective way to defeat a ballot measure one opposes is to create confusion. Caldara opposes taxation in principle.

In 2018, there were two citizen’s initiatives on the state ballot intended to repair Colorado’s rickety highway infrastructure. One, “Let’s Go Colorado,” approved a $6 billion bond issue and an increase in the state sales tax to secure the bonds. The other, “Fix our Damn Roads,” was an unfunded mandate that authorized $3.5 billion in bonds without raising taxes. The latter issue was filed and supported by Caldara and his associate at the Independence Institute, Mike Krause.

Both measures failed. Colorado’s consensus was the state needs to invest in its highways — but the two too-similar measures caused the voters to throw up their hands and just say no.

This year there were again two Citizens’ Initiatives to adjust Colorado’s income tax policy. The first one, Fair Tax, which would have created four progressive tax brackets, lowering taxes slightly for low- and middle-income voters, and increasing them for high-income voters, failed to obtain enough signatures to appear on the ballot. Caldara filed a competing measure that kept the flat tax structure, but lowered the tax rate. This week the Secretary of State announced that Caldera’s measure, Proposition 306, will appear on the ballot, all by itself.

So instead of simply creating confusion and causing the progressive tax reform measure to fail, Caldara’s spoiler measure has a chance of passing. Don’t let this happen.

Counting up the damage

Colorado’s income tax revenue will already be down in 2020 and 2021 because of the COVID-19 pandemic and the resulting high unemployment and reductions in working hours. Caldara’s initiative, if passed, is projected to reduce Colorado’s income tax revenue by nearly $80 million in fiscal year 2019-2020 and almost twice that, $158 million, in FY 2020-21.

This tax cut, however, is not stimulative for the economy, but instead goes to the taxpayers who need it least and will likely not spend the money. Instead, it will hobble the state’s capacity to provide necessary services to the public and municipalities, who will need those services more than ever. This will cause the economy to shrink further.

Wait, why is it not a stimulus?

Everyone is aware that in previous recessions, U.S. presidents have urged Congress to cut federal taxes to stimulate the economy. And those tax cuts, together with other stimulative measures, seem to have worked. There’s a difference, though, between a federal tax cut and a state tax cut. The federal government can operate at a deficit. So the Fed spends what it was going to spend anyway, or maybe even more — to meet increased public needs for services like SNAP (food stamps) and this year’s unemployment supplement. And people have more money to spend, too. So this double injection of cash into the national economy really does promote economic growth.

But Colorado can’t deficit spend. If less tax revenue comes in, Colorado must spend less. A reduction in state spending will have the effect of shrinking our economy even more, making the recession last longer and letting the people incur even more suffering. Don’t force people to suffer. Vote no.

My take

This is the part of Inside the Ballot Box where the pros and cons usually go. But not this time. Unless you’re a big business with a frozen heart, and you had a really good, profitable year, there are no pros. There is absolutely no reason a responsible voter should even consider voting for this measure. Colorado is revenue-starved already, and is failing to take advantage of its (formerly) strong private economy because it is so constrained in its ability to keep taxes in proportion with the rest of the economy. Caldara’s ugly proposition was, I hope, only intended as a ballot spoiler. But the inconceivable happened, and it made the ballot without its opposite measure.

So, if you love our state, and our community, please vote No on Prop 116 and leave Colorado’s tax rate where it is. It’s the most you can do. It’s the least you can do. Vote no.

Correction: Correction: This column in its original posting incorrectly referred to Colorado's income tax as regressive. Thanks to Ben Murray of the Independence Institute for pointing out that flat taxes are not of themselves considered regressive. The article has been amended to state that flat taxes can contribute to an overall regressive tax structure by the author.