Colorado could balance budget with a less regressive tax code

A new report by United for a Fair Economy shows how Colorado’s fiscal problems could be fixed by flipping its regressive tax system.

A progressive tax system is one in which wealthier residents pay a higher percentage of their income in taxes than lower income residents; a regressive tax system is the opposite. And when you add up all of the taxes paid by taxpayers in Colorado, the system is regressive.

The lowest 20 percent of earners in Colorado pay an average of 9.0 percent of their income in state income, excise and property taxes. The next 20 percent also pays 9.0 percent. The middle 20 percent pays 8.2 percent. The second to highest 20 percent pays 7.5 percent. The top 20 percent pays 5.3 percent in taxes, according to the study. Colorado is one of the few states with a flat income tax. Most states have progressive income taxes.

According to the new report, if that situation were reversed it would boost state revenue from $19.6 billion to $26.9 billion annually. That’s more than enough to turn a systemic annual deficit into an annual surplus, with room left over to reverse many of the deep cuts made in the last few years to education and other programs.

The key to this inverted tax system, the report says, is that states “must establish, or significantly improve upon, the graduated personal income tax – the backbone of any progressive tax system. Concurrently, states and localities must significantly reduce their reliance on regressive sales, excise and property taxes, which fall heavily on low- and middle-income families.”

Keeping in mind that Colorado is one of eight states with a flat income tax so there is no graduated personal income tax to be improved upon. In Colorado, a graduated tax would have to be implemented before it could be improved upon.

You can see the details of the study here.

The Colorado Center on Law and Policy has done similar studies of Colorado’s tax rates and come to the same determination. Earlier this year, the Center proposed putting an initiative on the ballot to create a graduated state tax, but pulled the measure when support for it seemed unlikely.

“As much as we believe Colorado needs swift action to address its fiscal challenges and stop the cycle of damaging cuts to our public services, these measures were not able to gather the broad support needed to move to the ballot in 2011,” said Colorado Fiscal Policy Institute Director Carol Hedges. “People across the state have been discussing how to preserve the things that make Colorado a great place to live. Coloradoans need to continue those discussions and more people need to be involved in finding solutions to attract the broadest possible support.”

To read a different perspective on Colorado taxes, click here.

Ed Brayton contributed to this story.