Amendment 87 proposes replacing Colorado’s flat tax with multiple graduated income tax brackets, topping out at a whopping 8.4% and raising new billions to fund education, child care and healthcare. We can’t know how much goes into each designated program, because proponents don’t specify any guaranteed amounts. Just like Amendment 87, this column is focused on where the money comes from rather than where it goes.
The blue collar millionaire
“Millionaires” live in fancy neighborhoods, drive expensive cars, and won’t even notice another 4% missing from their paycheck, right?
Wrong. Nationally, 12 percent of income tax filers hit the “Top 1%” at least once in their life. Roughly 70% of people who experience such a blockbuster annual income won’t stay in that bracket for more than a year or two.
Amendment 87’s proponents don’t seem to realize they will be raising taxes on the blue-collar small businessman who’s about to have the biggest year of his life. Consider an auto mechanic who opens his own shop and eventually builds a steady stream of local business. According to YourExitValue.com:
“Take a two-bay shop with $900,000 in revenue and $180,000 in net income. The owner pays himself a $70,000 salary, runs a $9,000 personal truck through the business, and had a one-time $15,000 equipment repair last year. Normalized Seller’s Discretionary Earnings is $180,000 + $70,000 + $9,000 + $15,000 = $274,000. At a 2.5x multiple — typical for a healthy owner-managed shop — the business is worth about $685,000.”
For one tax year in his life, the auto mechanic with calloused and grease-stained hands puts a “Top 1%” tax return in the mail, after $70,000 in income and a $685,000 business sale, totaling $755,000. Amendment 87 increases taxes by 3% for money earned over $500,000 to $750,000, and 3.5% from $ 750,000-$1 million. The mechanic would owe an extra $7,825 in taxes—a huge tab for someone who drives a $9,000 truck.
How about the neighborhood bar and grill, owned by the family down the street? The owner pays himself $90,000 a year, and the business might sell for about $800,000. Amendment 87 would tax his business sale-plus-salary an extra $12,550. Few independently owned restaurants survive long enough to entice an interested buyer, so an extra five-digit tax bill would almost certainly feel like a gut punch to a median-income family.
How about a family cabin? Or the condo a couple chose to rent out after moving to a bigger house? Selling a Colorado investment property would put almost anyone in Amendment 87’s top tax brackets.
And here’s the kicker: Amendment 87 is not indexed for inflation, and it applies to business income, so it won’t take long for small businesses to reach these higher brackets one way or the other. Something to think about… over a beer at the neighborhood bar.
The 10x employee
Proponents of Amendment 87 aim to nearly double the state income tax rate for millionaires, and not surprisingly, many millionaire CEOs and investors are predicting catastrophe. But contrary to conventional wisdom, it’s not because the CEO’s personal tax rate will nearly double. They’re rightly worried about losing out on talented recruits capable of making breakthrough products.
Business is just like professional sports—CEOs are hunting for game-changers. They would crawl over broken glass to hire a unique talent who can take their company to the next level. If they have $1 million in salary to spend on engineering, they would rather hire one brilliant engineer than a handful of unremarkable ones. In tech circles, the “10x Engineer” is part myth, part legend. Younger employees understand the theory, while veteran executives can point to examples. Consider two fairly common scenarios:
The 10X genius: Since the tech boom of the mid-1980s, it is not uncommon for Colorado companies to emerge as industry leaders in sectors like data storage, geolocation, and most recently, quantum computing. Such companies are only as valuable as their next breakthrough. When a brilliant engineer finds a new way to connect distant servers, or to map the Earth’s subsurface, it can mean tens of millions in revenue, hundreds of new jobs, and billions in valuation.
The 10X salesman: Exceptional sales leaders also command huge salaries— often the highest in the company, especially when a huge deal closes. Take that same tech company and imagine they’ve built a healthy niche with mid-sized clients. The CEO lures a proven sales leader to join the team in Colorado, and within the first year, they land a massive national client. Revenue jumps 25 percent, their assembly line adds a night shift with 30 employees, and another ten employees in software and support.
What does landing the best genius or closer mean to a junior-level worker who makes less than 10% of those new recruits? Take a human resources assistant making $40,000 at a quantum computing startup. After four years, he’s accumulated $20,000 in stock options. The 10X Salesman lands a defense contract that pays $20 million annually, which means their quantum company just became one of the first in the industry to earn revenue. Emerging tech companies are valued at more than 25 times their annualized revenue, so that HR Assistant’s stock options are now worth at least $500,000.
Unmistakable Trends
IRS data is clear that recent “millionnaire tax” states like Massachusetts see an acceleration of out-migration for higher-income workers. The gravitational pull to low-tax states is most obvious when comparing California and Texas, where California has seen its adjusted gross income (AGI) drop by $12 billion through out-migration, while Texas AGI increased by $5.5 billion through in-migration. In the first half of the 2020s, California’s share of tech jobs dropped from 17.8% to 14.3%, while Texas now commands 11.2%. The tipping point may have already occurred: as of 2026, the average take-home pay for engineers in Texas is now higher than engineers in California.
High-value growth industries tend to create tight local clusters of expertise. Our state sits just outside the top ten regions in North America with a concentration of software expertise. Of the top 16 schools producing computer science majors, none are in Colorado. Companies looking for a top software engineer are searching out-of-state. Space and defense tech clusters in Colorado are increasingly vulnerable to the pull of Texas and its business-friendly environment.
Lessons from Massachusetts
Massachusetts voters raised taxes on millionaires in 2022, adding a 4% “Millionaire Surtax” to their flat 5% income tax. (Unlike Amendment 87, the “surtax” is indexed for inflation). High-income earners moved away, new business starts ranked among the slowest in the country, and many of the remaining taxpayers used some creative tactics to avoid the threshold. Our colleagues at the Pioneer Institute in Boston have chronicled the wreckage, and here are a few of their key findings:
Massachusetts was already losing population and revenue in the 2010s as the business climate worsened and the cost-of-living rose. New Hampshire does not impose a state income tax, and changing “work from anywhere” conditions during COVID made the neighboring state even more appealing for high-earning Massachusetts professionals. Unlike Massachusetts, Colorado was a magnet state for “zoom worker” relocations early in the COVID years. By 2023, however, high costs and low business prospects finally caught up to Colorado, and the state saw its first population decline in decades.
The exodus
According to the IRS, Massachusetts high income outmigration accelerated by 8% in 2023, barely one year after the tax increase passed. All told, about $4.2 billion (about 1%) of Massachusetts’ AGI left for other states, with about 70% of that income belonging to tax filers reporting over $200,000 annually. More than 60% of the Massachusetts refugees relocated to New Hampshire and Florida, two states with only one thing in common: they don’t tax incomes. Perhaps most concerning, young high earners (age 25-35) are now the second largest demographic leaving Massachusetts.
Graduated income taxes also precipitate some strange behavior that may not be good for society or the taxpayer. Thousands of wealthy Massachusetts couples suddenly filed their taxes individually, exposing a loophole that the legislature soon addressed. “Blue-collar millionaires” selling their business may try to avoid higher brackets by spreading their payouts over multiple tax years—a strategy that adds increased risk for the seller and weighs heavily on the buyer as they work toward an operating profit.
Jobs down the drain
It’s hard to overstate how far and fast Massachusetts fell behind compared to low-tax states, with trends accelerating dramatically in 2023. While Texas and Florida increased their job count by over 10% from 2020 to 2026, Massachusetts lost 1.1%—roughly 35,000 net jobs, 19,700 of which were in the professional and technical business sectors. The state also ranks among the five worst for new business formation, a major sign of investor flight: The Pioneer Institute Reports: “[F]rom Q1 2020 to Q3 2024, Massachusetts had the lowest average quarterly net establishment growth rate of any state (0.06 percent), and in nine consecutive quarters from Q3 2022 to Q3 2024 there was a negative rate of business formation—equating to a loss of 17,549 net employer businesses during that period.”
Amendment 87 proponents argue Colorado is better fortified to withstand any storms caused by their millionaire tax, because the quality of life and the size of the income outweigh any extra costs. That’s an extremely optimistic take when Colorado bears many of the same vulnerabilities as Massachusetts, such as recent evidence of net-outmigration in population, companies, and jobs. What is different is Colorado’s ongoing appeal for young high earners, still ranking 3rd behind Texas and Florida. At 4.4%, our flat tax rate ranks among the lowest in the Mountain West… but not for long. Utah and Montana are cutting taxes in an effort to land below Colorado’s rates. Wyoming and Nevada are already zero income tax states.
Colorado is also one of the slowest states to return to the office, post-COVID. Appealing as “work from home” may be to some workers, it makes an employer’s transition to a more business-friendly state easier to manage.
The record is clear: a “millionaire tax” leads to fewer jobs, less investment, and a shrinking population of high-income residents. Colorado’s business climate is already on shaky ground, Amendment 87’s tax increase would cause a full-blown earthquake.
Matt Knoedler is senior policy fellow at Independence Institute, a free market think tank in Denver. He’s an “optimistic skeptic” studying the future of government in a fast-changing economy.
