Reviews | Paul Olson: What is the best tax rate? It is complicated
The feeling of control is a key factor in our daily happiness. In November, Colorado voters will have a great opportunity to control their taxes a little thanks to an election measure that could raise the state income tax rate from 4.55% to 4.4%. Should we vote yes to the reduction? This is not a trick question.
According to the Colorado state legislature, if passed, 75% of taxpayers would receive a tax reduction of $63 or less in 2022 and beyond. It’s not much, but many people would appreciate a little extra spending money. On the other hand, it is estimated that this small reduction in the tax rate will result in more than $400 million in less revenue each year in the state budget. No pocket change. Closing this budget gap will require cutting the budgets of many state departments. Local governments and many people could feel the impact of reduced funding for various public services.
How would this tax cut affect Summit County? Lower taxes mean more money in the pockets of the Front Rangers to spend on skiing, lodging and eating in the mountains. A lower tax rate would attract new residents to Colorado, boosting the county and state economy. Lowering the tax rate would give Summit commercial operators the opportunity for a greater return on their efforts, helping to spur local investment. On the negative side, less revenue for the state budget could affect the amount of state support for education, health care, and other services, forcing Summit County residents to pay a larger share through property taxes.
In other tax news, Heidi Ganahl, the Republican candidate for governor of Colorado against Jared Polis, recently proposed eliminating income tax in our state. She has yet to unveil her plan to accomplish this huge change, other than to say she will tighten budgets and get rid of fraud and waste. Governor Polis agrees with this concept saying that it would be ideal to have no income tax because an income tax discourages productivity and growth.
Eliminating Colorado’s income tax would be a bold step, but we can get a glimpse of other states that are making it work. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming) do not tax individual salaries. In support of this tax strategy, a Tax Foundation analysis showed that over the past decade, these states’ economies have grown 56% faster than the national average. On the negative side, these states generally have much higher sales, gas, and property taxes than Colorado. Washington has a gasoline tax of 49.4 cents per gallon compared to Colorado’s 22 cents. All nine states have higher property tax rates than Colorado, with Texas and New Hampshire being more than triple our rate. Florida, Texas and Tennessee have sales tax at more than double Colorado’s rate of 2.9%.
It’s tempting to consider the benefits of Colorado becoming a no-income-tax state, but many people would rather stick with the heck they know. Businesses and individuals like stability so they can make long-term plans and have more confidence in their investments. Can we trust the Colorado legislature to implement a new tax system without various special interest groups spoiling the plan? If our legislature entered into discussions about eliminating income tax, everyone would start calculating how much more they would have to pay in sales and property taxes. Would imposing a higher sales tax on basic necessities on low-wage workers be a drag on the state economy? Would business owners and operators rebel against significantly higher property taxes? Or would the increase in everyone’s take-home pay and the potential for greater economic growth tempt people to accept increases for other taxes?
The founders of our country saw no need for an income tax, so our nation has relied on customs duties on imported goods and excise taxes on items like whiskey to pay federal bills until the costly Civil War forced an income tax. In 1895, the United States Supreme Court ruled that an income tax was unconstitutional. Most Americans were in favor of the Sixteenth Amendment allowing an income tax when it was passed in 1913 because it only targeted the wealthy. Colorado enacted its income tax in 1937. People have a great aversion to taxes, but they also have a fairly large demand for an increasing number of utilities that must be paid for and income taxes have come from this. to provide the lion’s share of federal revenue and more than half of Colorado’s state budget.
US Supreme Court Justice Oliver Wendell Holmes Jr. said, “Taxes are the price we pay for a civilized society. We live in a wonderful state and have a great country and the taxes we pay are an important factor in our prosperous civilized society. Hopefully, Coloradians can find the right balance for taxation, not overtaxation that discourages productivity and not undertaxation that fails to fund needed public services.
Paul Olson’s column “A Friendly Conservative” is published biweekly on Tuesdays in the Summit Daily News. Olson has lived in Breckenridge since 1995. Semi-retired, he works at REI in Dillon and enjoys snowboarding, Nordic skiing and hiking. Contact him at [email protected]