Ed tax proponents will aim for two-tiered increase in state income tax
By Peter Blake
The proponents of the $1 billion tax hike required to implement the new school finance act will apparently proceed with Proposed Initiative #22, which would entail a two-step increase in the state income tax.
It’s the only one of the 16 pending proposals whose petition format has been approved by the secretary of state’s office, and organizers concede it’s the likely choice. But they haven’t made it public yet.
“We’re still wrestling with a couple of things that need a little bit more time,” said Gail Klapper of Colorado Forum, the coordinating group.
No. 22 — it will be re-numbered for the ballot — would boost the current flat income tax rate of 4.63 percent to 5 percent on incomes under $75,000. The rate on incomes over $75,000 would be go up to 5.9 percent.
Klapper didn’t spell out the problem, but presumably she is looking for a few more allies, particularly from the business community. For instance, Tamra Ward, president of Colorado Concern, has said her business-oriented group won’t support a graduated tax schedule — presumably because most of her members would fall into the higher bracket.
Klapper said they haven’t started collecting signatures yet. They will use a mixture of paid and volunteer circulators.
If they wait until the last minute to turn in the signatures, and come up short, there will be no “cure” period to collect more. The less time you have to collect signatures, the more you have to pay the professionals for each one.
Colorado’s state income tax rate was a flat 5 percent until it was lowered to 4.75 percent in 1999 and to 4.63 percent in 2000, under Gov. Bill Owens.
Graduated income taxes appeal to progressives, even if the business community doesn’t like them. But Klapper offered another reason not to simply hike the current flat rate.
To raise the money desired by Senate Bill 213, the school finance act, the flat tax would have to go to 5.35 percent — as it would in Initiative Proposals No. 13, 17, 21 and 25. But that would give Colorado the highest flat state income tax in the nation, Klapper noted. “Those in favor of a flat tax realize that Colorado shouldn’t be No. 1 in the country in terms of the flat tax rate,” she said, “and that doesn’t work for us either.”
She’s right. Even Taxachusetts levies only 5.25 percent, at least on wages and salaries. According to the National Conference of State Legislatures, the only other flat-tax states are Illinois (5 percent) Indiana (3.4 percent), Michigan (4.25 percent) Pennsylvania (3.07 percent) and Utah (5 percent).
Seven states levy no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Most states have tiered rates.
If Colorado passed Initiative 22, it would be the only state with just two tiers. Tiers in other states range from three to 12. A few states with tiered rates even top out below the 5.35 percent flat tax Colorado would be looking at: Alabama, Arizona, Mississippi, New Mexico, North Dakota and Oklahoma.
By the way, Initiative No. 22 is an amalgam of both a statutory change and a constitutional change. Such a combination is unusual, but not unprecedented, according to attorney Mark Grueskin, a drafter of the pending proposals. They have been upheld in court, since the standard for amending the state constitution by initiative is no higher than the statutory standard.
The reason a constitutional change is needed? A little-known provision in TABOR, the Taxpayer’s Bill of Rights. In paragraph (8) it specifies that “any income tax law change after July 1, 1992, shall also require all taxable net income to be taxed at one rate.” Author Douglas Bruce was not a fan of graduated income taxes.
The proponents were lucky in one way. The original estimate by the Legislative Council was that the proposed tax increase would raise $1.4 billion a year. But that turned out to be a mistake, the council admitted. The revised figure is just over $950 million, eliminating the hated “b” word.
That’s important because TABOR requires that all ballot issues proposing a tax increase list in the opening sentence how much the proposal would raise.
Now the title of No. 22 would read: “Shall state taxes be increased by $950,100,000 in the first full fiscal year …”
That goes along with your typical retailer’s pricing strategy, which always tries to keep it at $9.99, or $99.99, instead of adding that extra digit.
The proponents were also lucky that the Colorado Supreme Court chose to rule on the Lobato case so quickly. It took a mere 2 1/2 months from oral arguments in March to the ruling on May 28. Simpler cases can take five months or more before the ruling comes down.
Granted, they reversed a trial court ruling in favor of the plaintiffs, who were hoping the court would order much more revenue for the schools. But at least they did it quickly, so that the folks backing the school finance initiative could get started sooner.
The proponents haven’t taken advantage of that, because they’re still trying to garner more support. The clock is running.
Longtime Rocky Mountain News political columnist Peter Blake now writes Thursdays for CompleteColorado.com. Contact him at firstname.lastname@example.org You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com