Watchdog Wire

Joshua Sharf

October 14, 2013

Rather than aid poorer school districts, Amendment 66 will, in the long run, likely end up hurting them, making budgeting harder for those districts, and lives more difficult for both the students and teachers who live and work there.

The state is complaining that it’s chronically short of cash for education, both as a result of decreased tax revenues since the recession, and the state’s budget restrictions.  In response, they have proposed a two-tiered income tax system, the first in over a quarter of a century in Colorado.

Currently, Colorado has a flat, 4.63% income tax rate from the first dollar of income.  The proposed system would raise that to 5% for income under $75,000 and to 5.9% for income over $75,000.  Colorado has roughly 1.8 million filers in the first bracket, and just under 600,000 filers in the proposed upper bracket.  Proponents claim this would raise roughly $1 billion a year in new revenue, which they also claim would go largely to the poorer and neediest school districts.

How could a $1 billion tax increase make things worse for these districts?  Because the income tax, unlike the property tax, is pro-cyclical.  When the economy is doing well, incomes are highers, and receipts from the income tax rise.  The income tax varies much more with the business cycle than the property tax does because incomes vary much more than property values do.

This conclusion is borne out by a 2010 Tax Foundation study comparing variations in various sources of state and local income nationwide.  Corporate income tax was the most volatile, with personal income tax next.  A more recent analysis, also by the Tax Foundation, confirmed this result, and found that over the last 20 years, the least volatile source of state and local revenue has been the property tax, the primary source of income for school districts.

This has particular resonance for Colorado.  In 2008-2009, Colorado ranked 36th in year-over-year percentage change in state tax revenues; increasing the state’s dependence on personal income taxes will likely make them more volatile, and adding a progressive component will make them more volatile still.

Under Amendment 66, the state will backfill much of the difference for poorer districts.  This means that those poorer districts will find themselves more dependent on a more volatile source of income: personal income taxes.  When times are good, this will help them.  But when the next recession inevitably hits, it’s those poorer districts, the ones that Amendment 66 claims to help the most, who will in fact, suffer the most.




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