Colorado to Vote on Income and Sales Tax Hike Tomorrow

October 31, 2011

Tomorrow, November 1, Colorado voters will cast ballots on Proposition 103, a tax hike which is expected to raise $2.9 billion in revenue between 2012 and 2016 for the state's general education fund. According to the Colorado government's 2011 State Ballot Information Booklet, the proposition would:

  • Increase the state income tax rate from 4.63 to 5.0 percent for five years, starting January 1, 2012;
  • Increase the state sales and use tax rate from 2.9 to 3.0 percent for five years, starting January 1, 2012; and
  • Require the state legislature to spend the money on public education by increasing funding above the amount in budget year 2011-12

While Colorado's current state sales tax rate seems paltry at 2.9 percent, Tax Foundation analysis finds that once local sales tax rates are accounted for, Colorado has one of the higher sales tax rates in the country. The combined state and average local sales tax rate in Colorado is 7.48 percent, 15th highest in the nation. Colorado's total state and local tax burden per capita for 2009 (the latest data available) was 18th in the nation, at $4,011.

Proponents of the tax increase say the revenue is needed to offset a supposed education funding crisis. "Business[es] won't be impressed by four-day school weeks and other cutbacks necessitated by budget shortfalls," commented Alex Miller on SummitDaily.com.

However, Colorado's Independence Institute has released an Issue Paper on Prop 103, estimating that the measure would cost more than the $2.9 billion price tag, as tax hikes have negative effects on economic growth and job creation. They find:

1. The total cost of the tax increase, including the loss in personal income, is estimated between $4.8 billion and $6.0 billion. The total cost per household is estimated between $2,169 and $2,711.

2. The higher tax will reduce job opportunities in Colorado. The total loss in jobs from the Prop 103 tax increase is estimated between 7,400 and 11,600.   

3. The higher tax will also reduce the tax base, partially offsetting the revenue generated by the tax. Prop 103 will exacerbate a $1 billion structural deficit in the state budget.

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