A view of the Colorado Capitol on May 4, 2024. (Quentin Young/Colorado Newsline)
A bill passed by the Colorado Legislature this year that adjusts taxpayer refunds will benefit high earners but decrease refunds for most Colorado taxpayers, according to a recent analysis from legislative staff.
Senate Bill 24-228 is a tax package passed in the final days of this year’s lawmaking term that was part of a deal to get a separate progressive tax policy for families across the finish line.
It reintroduced an income tax rate cut as a method to refund taxpayers under the state’s Taxpayer’s Bill of Rights, a constitutional amendment that requires the government to return money to taxpayers when revenue exceeds a cap determined by inflation and population growth. The income tax cut is triggered when that surplus exceeds $300 million.
That means for tax year 2024, the rate will drop from 4.4% to 4.25% and is expected to sink to 4.28% in tax year 2026, according to recent economic forecasts. The remaining TABOR surplus will be refunded through a six-tier sales tax mechanism.
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Its impact is that single filers with incomes up to $107,000 and joint filers with incomes up to $242,000 — amounting to three-quarters of Colorado’s population — will have a net decrease in TABOR refunds over three years. Higher earners will have a net increase of TABOR refunds.
For example, joint filers making between $52,000 and $107,000 will see about $300 less over that time period. Joint filers making above $319,000, however, will see an increase of $1,459.
“What this demographic note makes clear is something that we’ve known, which is that flat income tax rate cuts just increase income inequality. They disproportionately go to the already wealthy,” Joshua Mantell, the fiscal advocacy manager at the left-leaning Bell Policy Center, said.
According to data from the U.S. Census Bureau, Indigenous people, Black people, Hispanic people, people with a disability and people living in a rural area are most likely to live in a Colorado household that will see a smaller refund.
Lawmakers also passed House Bill 24-1311 this year, which created a family affordable tax credit for parents who make up to $85,000. Bill sponsors, which include the new Bell Policy Center head and Democratic Rep. Chris deGruy Kennedy, touted the legislation and another bill to expand the state’s earned income tax credit as a major strategy to cut child poverty in the state.
“(SB-228 and HB-1311) were meant to be sort of complementary,” Mantell said. “There’s a significant chunk of money that went towards the family affordability tax credit to ensure that low and middle income families with children are able to afford basic necessities and keep up with the cost of living.”
“People who are not eligible for those tax credits because of the income specifications are able to get some money through the TABOR refunds. That kind of evens it out a little bit,” he said.
The amount of the credit depends on the household income and number of children, with a maximum credit of $3,200 for each child under 6 years old and $2,400 for each child between 6 and 16 years old.
A recent legislative analysis found that the average credit for eligible claimants would have been $2,427 based on 2019 statistics.
About 17% of Coloradans live in a household affected by the bill, according to census data. Indigenous, Black and Hispanic demographic groups have a substantially higher share of people affected by the bill.
Though the bill’s impact will be to lower TABOR refunds overall, it will result in comparatively high tax savings for those who qualify for the credit. A joint filer who makes $50,000 and has one child, for example, might see a $116 reduction in their TABOR refund but a tax savings due to the credit of $2,811.
“Those are the folks that need the help,” Mantell said. “Making sure those folks are seeing the financial benefit is hugely important.”
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