Next month, Colorado voters will decide whether to allow the state to permanently keep their Taxpayer’s Bill of Rights (TABOR) refunds. Proposition CC, the “Allow State to Retain Revenue for Transportation and Education Measure,” was referred to voters by the General Assembly with the passage of House Bill 19-1257 in April.
Currently, the TABOR amendment to the Colorado State Constitution, approved by voters in 1992, generally requires the state to obtain voter permission before raising taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates, creating new taxes, changing tax policy in a way that collects more revenue, or issuing bonds. Under TABOR’s state spending limit, state revenue may increase from year to year with inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and population growth, but any excess (less certain exemptions) must be returned to taxpayers unless voters allow the state to retain it.
TABOR refund mechanisms have taken a variety of forms over the years. For fiscal year (FY) 2019, $428.5 million will be returned to taxpayers in the form of property tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. s, temporary income tax rate reductions, and a sales tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. when taxpayers file their 2019 tax forms in 2020.
If Proposition CC is approved, FY 2019 refunds would not be affected, but Colorado voters would forgo all future TABOR refunds they would normally be entitled to, including an estimated $310 million in FY 2020 and $342 million in FY 2021. Under current law, these surpluses would result in a refund of between $26 and $79 for single filers in tax year 2020 and between $30 and $90 in tax year 2021 (double that amount for married couples filing jointly).
If voters approve Proposition CC, which requires a simple majority, that revenue and all future refunds would instead be retained by the state. Proposition CC specifies that excess revenue would be evenly divided among public education, higher education, and transportation programs, but because this ballot question would change state statute, not the state constitution, future policymakers could enact legislation reappropriating those funds for other purposes without first posing the question to voters. While Proposition CC would require an annual auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. to be published disclosing the amount of excess revenue kept and spent under the measure, that requirement could also be amended or thrown out by future policymakers.
Under current law, the TABOR spending limit serves as a revenue constraint and taxpayer transparency mechanism that, by default, returns excess tax collections to taxpayers. In any given year in which collections exceed the cap and voters are asked if the state can keep the revenue, voters get the final call. If they believe the state needs the money more than they do, they can vote to allow the state to keep it. If they want their refund, they can deny the legislature’s request. Either way, TABOR allows voters to decide each time the issue arises, whereas Proposition CC asks voters to make a decision regarding future refunds now, with no way of knowing how much money they would be forgoing in the future or how that revenue might eventually get redirected.
To date, apart from the five-year “time-out period” authorized by Referendum C, Colorado taxpayers have consistently voted to preserve their TABOR refunds at the state level, with nearly $3.5 billion being returned to taxpayers over the years. Among the counties, municipalities, and school districts that still have a local TABOR cap in place, the mechanism has operated as intended, with voters approving local government retention of the revenue in some years and electing to keep their refunds in other years.
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