October 15, 2013
A proposed $1 billion Colorado income tax increase may damage the state economy, destroy jobs and cost the average taxpayer as much as $2,000 a year in disposable income, according to new research.
Perhaps worse, the measure Gov. John Hickenlooper hailed as the “most comprehensive education-reform initiative in the history of the United States” may not “result in education reform performance measures that are equal to the expenditure,” according to studies by the Leeds School of Business at University of Colorado Boulder.
Voters must approve the tax increase, called Amendment 66, to fund a wide variety of educational reforms and capital construction. The amendment will also change the way state dollars are allocated to school districts.
The amendment would do away with Colorado’s 4.63 percent flat income tax rate in favor of a two-tiered system that would levy a 5 percent tax on income up to $75,000 and 5.9 percent on anything over that. Proponents expect to collect about $950 million annually.
But the new studies raise questions about what, if anything, taxpayers would be getting in return.
“The report shows that the tax proposal would successfully generate revenue for schools, but that those education revenue increases would come at a wider economic cost,” according to a summary of the findings published on the website of Common Sense Policy Roundtable, one of several economic development organizations that partnered to commission the studies. The summary emphasizes that the partnership supports education reform.
The reports show that raising income taxes by nearly $1 billion would cost the state an average of $224 million in other economic activity during the first five years and an average of $993 million from 2019-2040.
“The report finds the two-tiered tax increase has negative implications for individual income earners, decreasing disposable personal income,” the summary reads.
“The resulting decrease in consumption and savings directly impacts Colorado businesses providing those goods and services,” it continued. “In isolation, this has reverberating impacts on the economy as lower demand leads to less output, lower employment, and decreased taxes compared to a baseline scenario.”
The drag on the economy would also impact future job growth, with researchers estimating 13,400 fewer jobs in the long run when compared to not raising taxes.
Perhaps most troubling of the researchers’ conclusions is that the level of funding for education has only a “tenuous” impact on educational performance. They cite data from 2007-2012 in which several Colorado school districts beat the national average for graduation rates while falling below the national average for per pupil funding.
The news isn’t entirely bad for those urging “Yes on 66.” The studies also found that lower high school dropout rates and more kids entering college as a presumed result of the education reforms could cut incarceration rates and dependency on social assistance like welfare and food stamps. Even then, however, “the impact on the Colorado economy is net neutral to slightly positive.”
“The most fair way to analyze the economic impacts of Amendment 66 is to include the overall impact that increased investment in education has on Colorado,” Andrew Freedman, campaign director for Amendment 66, is quoted as saying in the Denver Business Journal.
“To review the impacts of increased taxes without taking into account the benefits of an improved education system is only looking at half of the equation,” he said.
Opponents, however, have said that Amendment 66 amounts to a blank check for school districts without enough accountability for how tax revenue will be spent. They’ve said that now is not the time to raise taxes.
“Coloradans don’t have an appetite in this fragile economy for a $1 billion tax increase,” said Kelly Maher, the executive director of Compass Colorado, during a press conference in August. Compass Colorado is one of the organizations behind Coloradans for Real Education Reform, the group spearheading opposition to Amendment 66.