That our two political parties have such different philosophies regarding business and taxes is exasperating because prosperity would serve even the very different interests of Democrats and Republicans.
Democrats want more government revenue to spend on social welfare, health care and schools. Republicans want to stimulate the economy, leading to more prosperity for citizens. A relatively lighter tax burden would help accomplish both.
Dueling philosophies
Purely for illustration, let’s say the legislature could be guaranteed the same amount of tax revenue whether it set the income tax rate at 5% or 50%.
How could that be possible? Because at the lower tax rate, many more businesses would be generating income by selling goods and services since ownership would know it could keep 95% of its net profit. At the higher rate, nobody would start a new business knowing half of its profits will be paid in taxes. Only businesses unwilling or unable to relocate to another state would be left to pay the tax.
Which tax rate represents better policy?
To any capitalist, the lower tax is the better option because, in addition to generating the same tax revenue, more businesses create more jobs, own more property, and purchase more equipment and supplies. Those activities create more prosperity for citizens and indirectly generate still more tax revenue for government. That’s a win-win.
Yet judging from the policies of our state legislature, it certainly seems that a majority prefers to burden business with more taxes – as well as more regulation.
Late last summer, legislators raised taxes by roughly $250 million by eliminating various tax deductions. Now “progressive” Democrats are advancing more bills that would increase the tax burden on businesses by more than $500 million annually – mostly by “decoupling” Colorado’s tax system from federal tax law.
In light of last year’s unanimous Colorado Supreme Court ruling in MetroPCS v. Lakewood the constitutionality of these changes remains in question.
‘Decoupling’ dilemma
Since 1987, Colorado tax law has been “coupled” to federal tax law to simplify tax filing. Essentially, that means Colorado taxpayers simply take their taxable income from the IRS return and use it to calculate their state tax. In states which are not coupled to the IRS code, taxpayers must perform a separate set of calculations to determine how much state income tax they owe.
Last year, however, lawmakers confronted with an $800 million budget deficit preferred raising taxes to reducing spending, so they required Coloradans to “add back” certain federal deductions when calculating their state tax.
Now three more bills – House Bills 1221, 1222 and 1223 – would do even more of that, to the tune of more than $500 million annually.
HB 1221 would reduce the ability of businesses to use a net income loss in a bad year to offset taxable income in a good year. HB 1222 would require businesses to add back deductions for interest expenses, depreciation, and research and experimentation. HB 1223 would require Coloradans to pay sales tax on software downloaded on the internet.
Most of these deductions were added or expanded by Congress in 2025. Eliminating them from the state tax code would represent a nearly 50% increase in corporate taxes, according to one business advocate.
Now here’s the kicker: not one dime of this money will be used to balance the $1.5 billion gap between state spending and revenue. Instead, money raised by these bills will fund the Family Affordability Credit, a tax credit or payment (to those who do not pay taxes) for families with income less than $95,000.
Fleeing the fallout
In the past two years, Colorado lawmakers created roughly $1 billion of these “refundable tax credits” whereby state government literally writes checks to people, including illegal immigrants, who pay little or nothing in taxes. But when revenue projections declined, progressives lamented that these tax credits would be paused under current law because the state budget couldn’t pay for them.
Rather than shut down their Santa Claus machine, progressives prefer to increase the tax burden on business even more. Is it any wonder that since 2019, at least 98 businesses have either left Colorado entirely or moved jobs out of state?
Rather than use this money to fund schools or health care, which Democrats claim to prioritize, they’re “robbing Peter to pay Paul” and creating a new entitlement.
Why? Well, George Bernard Shaw explained the obvious long ago: “A government that robs Peter to pay Paul can always depend on the support of Paul.”
Meanwhile, Peter is heading for the exits.
Mark Hillman previously served as Colorado Senate majority leader and state treasurer.
