Colorado Public Radio reported yesterday on a provision in the GOP’s tax cut bill that could perversely (to the bill’s stated intent, anyway) increase the state and local taxes paid by residents of Colorado and several other states:
There are winners and losers in the GOP tax bill, and a lot of the coverage has focused on what it means for businesses and individuals, but state and local governments have a lot at stake too.
The Republican plan will add about $1.5 trillion to the federal deficit, yet it potentially will add money to Colorado’s coffers. State budget experts estimate roughly $300 million more in state taxes will be paid as a result.
How, you may ask?
Even though many taxpayers will see a rate cut, people’s taxable income, on average, is expected to increase because of changes with federal deductions. Specifically, line 43 of your federal form — “taxable income” — will be larger. That number carries over onto your Colorado return. Since the Centennial State’s income tax is a flat 4.63 percent of your federal taxable income, a bigger number means more dough coming in.
And of course, more “dough coming in” means more taxes being paid! With Colorado’s reckoning of your taxable income being linked to your federal taxable income, your total state taxes will increase with the loss of deductions. Even if the tax rate on that income goes down at the federal level, Colorado can’t afford to match the rate cut–especially not with the likelihood of big federal budget cuts down the road to pay for these tax cuts today.
Now, you might think that this change of events would have local Republicans upset about hiking taxes on Coloradans as a consequence of cutting taxes nationwide. But you’d be wrong! A statement from Republican House Minority Leader Patrick Neville celebrates new reports of revenue growth in Colorado–including hundreds of millions in new Colorado tax revenue specifically from the GOP “tax cut” bill:
The forecast prepared by the Legislative Council showed the General Fund is expected to grow $748 million over the previous fiscal year, and if the Tax Cuts and Jobs Act is passed by Congress this week, that number could be as high as $962.7 million for 2018-19 spending… [Pols emphasis]
Roads are our top priority, and there is no reason why nearly all of this new revenue should not go to widening highways and expanding primary arteries.
Can you imagine the outcry from the TABOR-diehard fiscal hawks in the Colorado General Assembly if Democrats in Washington had passed legislation that for any reason, intended or unintended, had the effect of increasing tax revenues in Colorado? This surely must be the first time Rep. Neville has ever cheered higher taxes under any circumstances–and we can’t help but think the straightforward partisan explanation for it is the most probable one.
Does Colorado need the money, for roads and a long list of other priorities? You bet. This and a lot more is needed based on every responsible long-term look at the state’s revenue sources and obligations that has been conducted in the past decade.
But what we need is more revenue generated responsibly for Colorado–not as an unintended side effect of a bad idea in Washington. It would also be nice for the state to be able to keep revenues generated in boom times instead of refunding it via insultingly paltry TABOR checks, but we think Neville’s newfound largesse would stop well short of that too.
Above all, in the context of everything the GOP tax bill will do in the long term, it’s critical to understand that this is not any kind of “windfall.” Every dollar Colorado nets in the short term from this change in taxable income will be cancelled out and then some by future federal cuts affecting all manner of vital programs. The only people who don’t think so are purposefully deluding themselves.
And when that happens, don’t look to Patrick Neville for help.