Income Tax Reduction

Bottom Line Up Front: Our aim is to keep moving the income tax needle downward, proving along the way that Colorado’s economy thrives and budgets remain balanced. Eventually, we might join the ranks of no income-tax states, which would be a competitive boon and maximal economic freedom. That’s a legacy of structural liberty we want to build. By campaigning on Income Tax Reduction, we align with voter preferences already shown. It’s a winning message: trust people with money, spur economy, and reduce government’s claim on your paycheck. We will push Colorado in that direction step by step; confident it will benefit all who live and work here by making our state freer and more prosperous.

a. Letting You Keep More: We strongly favor Income Tax Reduction, continuing the trend of lowering Colorado’s flat income tax rate and exploring the possibility of phasing it out eventually. When people and businesses keep more of their hard-earned money, it spurs economic growth, job creation, and individual prosperity. Colorado’s income tax is already relatively low (4.4% flat as of recent voter-approved cuts), and our goal is to cut it further – aiming for perhaps 3% or even lower in coming years, with the ultimate aim of no state income tax if feasible (like states such as Texas, Florida, Tennessee). Lower income taxes make our state more competitive for attracting businesses and high-income earners (who otherwise might choose no-tax states). Also, it’s a matter of principle: people can spend and invest their money more efficiently than government can. We saw voters consistently support rate reductions (Props 116 in 2020, 121 in 2022). Our administration will work to honor that mandate and accelerate it.

b. Plan to Reduce/Eliminate Income Tax:

1. Gradual Rate Cuts with Triggers: We can pursue legislation to drop the flat rate incrementally, say 0.1% per year, contingent on revenue growth or certain reserve levels being met (to avoid deficits). Similar to how some states do triggered tax cuts. For example, if general fund revenue grows above inflation by X, automatically cut rate by Y. This ensures fiscal prudence. Given TABOR, large surpluses have been refunding – we could instead use those to permanently ratchet down rate (which is essentially what Prop 116/121 did by citizen initiative). We’d consider going to voters again with another cut, maybe to 4.0% or 3.5%. Since prior ones passed ~57-58% yes, appetite is there. We’d campaign actively for it, showing how it benefits all taxpayers.

2. Budget Offsets: Lowering income tax means less revenue collected (unless growth offsets). To manage that, we must curb spending growth as discussed in Fiscal Discipline section. Also, expanding the economy will broaden the base (more taxpayers, more earnings) which recoups some lost revenue. We might also close some loopholes or streamline the tax code (Colorado’s is already fairly simple but there are some credits/deductions). If needed, shift some burden to consumption taxes (though I'd prefer to cut spending first).

3. Another approach: as property tax relief is tackled, maybe partially offset by lower income tax vs other revenue – but ideally we cut both with spending restraint.

4. Protect Essential Services: We will ensure any tax cuts are done in tandem with prioritizing critical services funding (education, infrastructure, etc.) so voters trust that we can afford it. Colorado’s budget had large surpluses in recent years, meaning we’ve been taking more than needed. Those refunds basically show the state could operate at a lower tax rate permanently. We’d highlight that – e.g., FY surplus was $X billion, which if rate was Y lower, we’d just not collect that excess in first place (which is simpler than collecting then refunding).

5. Elimination Feasibility: To abolish the income tax entirely (bringing rate to 0), we would need either replacing revenue or significantly downsizing government or using growth to shrink income tax’s share. We might set a long-term goal like eliminating over, say, 10-15 years. Some proposals include broadening sales tax base to services and raising sales tax, but cautious because sales tax hits lower income more. Perhaps a balanced approach: modest raise in consumption tax, plus continuing to trim expenditure growth. Also eliminating corporate income tax portion (which is small piece of general fund) could come early to lure businesses (CO corporate tax is same flat 4.4%). Then work on personal.

6. Constitutional Aspect: Income tax rate is in statutes (and max in constitution by single rate requirement). We might eventually ask voters to constitutionalize a phase-out plan to lock it in (like some states constitutionalize no income tax or reductions). But one step at time: get it down to say 3% first, see economic response. - Promotion of Benefits: Emphasize how cuts put money back in people’s pockets – a family earning $80k saved about $120/year from last cut to 4.4%; with further cuts they’d save more. Might not sound huge, but over time and across economy it’s significant. Also note dynamic effects: lower taxes can yield more investment, jobs, possibly even more taxable activity. While we won’t rely on dynamic scoring solely, it’s likely part of revenue offset will come from growth.

7. Keep Flat Structure: We’ll maintain the flat tax structure as constitutionally mandated, as it’s simpler and avoids punishing success. If we ever consider progressive, it’d require constitutional change and is contrary to our ethos; rather just reduce for all. A flat cut helps lower and higher earners equally proportionally. We can further help low earners by expanding earned income tax credit or child tax credit if needed, but that’s minor adjustments, not interfering with main goal.

8. Outcomes and Safeguards: We expect lower tax to attract more businesses to relocate (which broadens base further – wealthy individuals might choose to live here if taxes drop vs moving to Florida or Texas in retirement). So, we foresee a virtuous cycle: tax cut -> growth -> more revenue than projected under static analysis, which then allows further cut. We saw something like that in states like Florida (no income tax yet good revenue from growth, albeit they have high sales/property taxes). We must still be cautious to avoid deficits; TABOR naturally prevents overspending by requiring refunds if income too high. If we overshoot and revenue declines, we’d have to trim budget or raise something else (but we’d try to avoid any raise by prudent planning).

Given Colorado’s citizen initiative friendly environment, if legislature doesn’t cut, citizens like Independence Institute will likely keep putting tax cut measures (Prop HH’s failure might cause them to do a direct cut measure next year to say 3.5%). So, we can either lead or follow that trend. We choose to lead responsibly so it’s done in context of budgeting properly.

No Income Tax Universe: Many states function with no income tax; they rely more on sales taxes, severance taxes (if natural resource rich), tourism taxes, etc. Colorado’s tourism and severance (oil/gas) are moderate resources. It’s doable but would possibly require raising state sales tax (currently 2.9% which is low; even if doubled to ~5.8%, still moderate combined with local it’d be ~9-10% total sales tax which some cities already have). We’d carefully weigh that shift’s impact on low income and maybe boost rebates to them. Alternatively, eliminating certain large exemptions (like some services) while keeping rate moderate could raise extra sales tax revenue. Also, cut spending via elimination of wasteful subsidies (like some corporate incentive programs maybe can be trimmed if overall tax climate is good, less need for targeted incentives).