KGNU’s Alexis Kenyon spoke with Kathy White, executive director of the Colorado Fiscal Institute to hear more.
Alexis Kenyon: To start, let’s get to the TABOR refund. Colorado State legislators have until May 8 to decide how to distribute about $2.7 billion in TABOR refunds. Last year, the legislators and Gov. Polis decided to distribute that money in lump sums. So individual tax filers got a $750 rebate and joint tax filers got $1,500. What are we looking at this year?
Kathy White: Right now, without any changes to law, current rules basically say that the more money you make, the bigger your TABOR rebate should be. Last year, the legislature changed that rule but for one year only.
Last year, they sent back an identical rebate to every taxpayer regardless of how much money they made, because lots of people were still struggling to recover from the pandemic and it wasn’t people who make over $250,000 who were struggling. So, the legislature took that historic rebate amount and just sent it back with an equal amount to every taxpayer regardless of how much money they earn. But that was only valid for a single year. Right now, with no changes to the law, we have what’s called this six-tier sales tax rebate mechanism. So it’s a very antiquated and complicated formula put in place in the late 1990s.
But how it actually works out in practice is the more you make, the bigger your rebate. This is the primary method that we have of returning excess revenue to taxpayers. But again, there are lots of other things that the legislature is considering and lots of other ways that the revenue can go back to taxpayers that isn’t in that mechanism.
Alexis Kenyon: So Coloradans passed Prop 121 In November, it was a tax cut, which seemed pretty minor, it took Colorado’s tax rate down 0.15%. How is that affecting TABOR refunds and taxes this year?
Kathy White: Right. So proposition 121, was an income tax rate cut. And as all across the board tax rate cuts do 121 definitely benefits wealthy more than average working people. So it took the income tax rate down to 4.4% which means that it’s basically money that’s coming out of what would have been returned to taxpayers through the TABOR rebate mechanism.
And because that tax rate disproportionately benefits in high-income taxpayers, it actually means that many low and middle-income Coloradans are going to pay more in taxes, because their TABOR rebate basically went to a lot of wealthy people. So that is going to be the case this year unless the legislature does something to tip the scales back. People at the bottom end of the spectrum who earn $50,000 and below are likely paying more this year in income tax because their rebate has been reduced because of the next rate cut.
Alexis Kenyon: What should people be aware of as they fill out their taxes this year, and as this May 8 deadline approaches?
Kathy White: Colorado did pass, recently, a state Child Tax Credit. So, they should be should make sure they get that if they are eligible. We also passed a state-based Earned Income Tax Credit.
There are property tax relief proposals in the works. There are a number of tax credit bills, again, that are moving through the process that, again, will reduce overall revenue. So it will shrink the size of the amount that needs to go back through this TABOR rebate mechanism. There are things from easy tax credits to housing, a whole variety of things in a lot of different areas. And so till May 8, the legislature has the power to do a lot of things. They have the power to set how the rebates go back right now under consideration.
There’s a whole variety of things that sends a rebate back in other ways. There has been talk in this legislative session of making that flat or identical rebate so that whatever is left to distribute as TABOR refunds, whether it’s $100 million, or $500 million, everybody gets a flat amount, and rich people don’t get more than their fair share, again.
Alexis Kenyon: During the pandemic, the federal government spent a historic amount of money on social welfare and safety net programs, many of which have ended this year.
Do you think, you know, moving forward that these policies will have made any impact on you know, the way state lawmakers and Colorado lawmakers are thinking about tax codes?
Kathy White: I do feel like we learned a lot about where we have gaps in an economic downturn. Things like unemployment insurance, and tax policies, that we need health care in order to work that we need child care in order for parents to go to work. And if they don’t have child care, they just care work. So I think we learned a lot of really important lessons during the pandemic. And we are, at least in Colorado, I think, starting to try to sell some of those holes and address some of those gaps.
But memory is short and so as the economy continues to improve now is really the time to start filling those holes in those gaps so that we prepare for the next downturn. But I’d give us maybe a C. We’re like, we’re “efforting” and but I don’t yet see a lot of, maybe a B minus.
Alexis Kenyon: So well, I guess we will see. It will be interesting to watch.
Kathy White: Yeah, and there are many, many states that have not done even the great things, some of the good things that Colorado has done to improve unemployment insurance. There’s another bill that would do that going to the legislature right now and the federal government has yet to act to do things like putting the expansions of the child tax credit back into place. So I’m not holding my breath on that.