“Make the rich pay their fair share”
“Tax the Rich!”
It’s a chant that drowns out any rational conversation about tax fairness, echoed across social media, op-eds, and political campaigns.
But when you look beyond the slogans, especially here in Colorado, the reality isn’t so black and white.
Calls to abolish Colorado’s flat income tax and adopt a progressive structure may sound seductive on the surface, but here’s the problem: we already have a form of proportionality built into the income tax system. The real disparities stem from a less understood combination of other, regressive state and local taxes.
A flat rate doesn’t mean higher earners pay the same in taxes, it just means they pay the same rate. And since they earn more, they still pay much more in absolute terms.
Taxes and fiscal policy adjustments are particularly intricate in Colorado, largely because of the Taxpayer’s Bill of Rights (TABOR), which modestly restricts the growth of an ever-shrinking portion of the state budget, based on a formula of population plus inflation. TABOR further requires any over-collected revenues be refunded back to taxpayers, and that new or increased taxes be approved by voters.
Paying the lion’s share
Since 2000, Colorado has maintained a flat state income tax rate, currently at 4.25% (recently reduced by Senate Bill 24-228).
Critics often claim TABOR inherently favors the rich, highlighting the flat tax system as somehow regressive.
Yet, according to the latest 2024 Colorado Tax Profile and Expenditure Report (data from 2020), the highest-income groups already shoulder a disproportionately large share of Colorado income taxes.
In fact, Coloradans earning $200,000 or more (8.4% of Colorado households) already pay approximately 48% of all state income taxes. Wages, the primary source of income across all groups, scale upward with higher income levels, ensuring that even under the flat tax rate, higher earners pay substantially more.
Figure 1 exhibits the effective income tax rate, or the actual percentage of taxes paid on your total income.
Furthermore, trends in effective income tax rates across Colorado indicate a system that is far from regressive; indeed, it shows progressive tendencies. Yet, calls persist to replace the flat rate with a progressive tax structure, often ignoring Colorado’s unique fiscal constraints and real data trends.
The true problem isn’t Colorado’s flat income tax, it’s the broader question of where the state could more effectively balance the tax burden. Addressing that issue requires us to move beyond slogans and confront the complexities underlying Colorado’s tax system.
Regressive taxes abound
So why is everyone shouting “Tax the rich!”?
When policymakers talk about disparities or “taxing the rich,” they often center the debate around the income tax. However, this approach misses a broader issue.
The real problem lies in the fact that every other state and local tax is actually regressive.
For example, taking a look at the Residential Real Property (Local) tax rate, effective tax rates for lower income groups have increased noticeably between 2015 and 2020 (see Figure 2).
This form of regressive taxation stays consistent with other tax burdens, such as sales & use taxes (state & local), gasoline taxes (state), and driver’s license & vehicle registration fees (state).
Ironically, Colorado’s flat income tax rate under TABOR is actually one of the fairest elements of the current system we have in Colorado. Applying the same rate to everyone makes those who earn more pay more. However, Coloradans perceive they’re paying more while the rich pay less. This perception doesn’t derive from the flat income tax, rather it stems from the growing burden of regressive local taxes.
In property tax especially, the lower income families are spending a significantly larger portion of their income on taxes compared to the wealthy. Although the real problem lies in how these regressive taxes disproportionately affect the lower income group, it ultimately creates an illusion that the broader tax system is skewed in favor of the rich.
Simply put, TABOR and its accompanying flat income tax aren’t the root cause of the problem, rather they’re being blamed for a much deeper structural imbalance in Colorado’s tax system.
Instead of attacking the flat tax or weakening TABOR, critics should focus on areas of taxation that actually fall hardest on low-income Coloradans.
Colorado doesn’t need a new income tax system. It needs a smarter, more honest conversation about what fairness really looks like.
Christopher Song is a pre-law student studying economics and statistics and the University of Illinois. He is a recent graduate of the Future Leaders Program at Independence Institute, a free market think tank in Denver.
