Colorado Democrats reject income tax cut, despite Gov. Polis’ support

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Colorado Republicans repeatedly invoked Gov. Jared Polis’ support Monday in a legislative effort that was all but doomed from the start: a cut to the state income tax.

Their bill, proposing to reduce the state income tax rate from 4.4% to 4%, received its first — and last — committee hearing in the House. The idea of a tax cut that’s equal across the board has little support among the chamber’s Democratic supermajority, despite being one of the Democratic governor’s longtime goals.

Brought by House Minority Leader Rose Pugliese and Rep. Scott Bottoms, both Colorado Springs Republicans, the bill would have reduced total state income tax collections by an estimated $1.3 billion in the first full year. Pugliese told lawmakers the aim was to let people keep more of their money now, versus waiting for refunds.

“This was your governor’s idea,” Pugliese said during Monday’s hearing in the House finance committee. “He is the one who said this is the way we need to address this issue and put more money in the pockets of people. We’re just helping to facilitate it.”

HB24-1065 failed in the committee on a near-party-line vote as the committee shot it down 6-5.

Rep. Bob Marshall, a Highlands Ranch Democrat, amended the bill to reduce the size of the tax cut, lowering the rate to 4.2%, and to add a sunset provision. By setting an expiration, the lower rate wouldn’t permanently affect revenue limits imposed by the Taxpayer’s Bill of Rights, or TABOR amendent.

He was the lone Democrat on the panel to support the measure — after taking a shot at the sponsors for not asking him for support as the sole non-Polis Democrat inclined toward tax cuts.

The committee’s other Democrats cited past studies by nonpartisan staff analysts that concluded wealthier Coloradans receive the lion’s share of savings from income tax cuts. Though projections show tax collections exceeding the TABOR cap for the foreseeable future — which would trigger refunds — good economic times aren’t guaranteed, they said.

A downturn, combined with the tax cuts, could result in services being slashed, they warned.

“This bill results in a net redistribution from the poor to the rich,” said state Rep. Chris deGruy Kennedy, a Lakewood Democrat on the committee. “… There are a lot of people hurting economically right now, and they’re not the people at the top.”

Chaer Robert, an adviser emeritus to the Colorado Center on Law and Policy, warned that low-income people would see the least benefit from an income tax cut because much of their earnings are covered by the standard deduction from their taxable income. Meanwhile, the money collected over the TABOR revenue cap — a mix of sales and income taxes — would fall, leading to smaller total refunds in good economic years.

That would hurt older taxpayers in particular, since Colorado does not tax Social Security income, she said.

“For most seniors, the primary effect of this bill would be a much smaller TABOR refund,” Robert said.

Income tax cuts have proven broadly popular among voters in recent years. Proposition 121, which cut the state income tax rate from 4.55% to 4.4%, won by a nearly 2-to-1 margin in November 2022.

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