A pair of laws adjusting how tax refunds are distributed will largely benefit Coloradans at opposite ends of the income scale, according to recently released demographic analyses.
The two laws, passed as Senate Bill 228 and House Bill 1311, each targeted tax collections expected to surpass the cap set by the Taxpayer’s Bill of Rights, or TABOR. The Senate bill cuts the state income and sales tax rates during flush times, with bigger cuts corresponding with bigger surpluses. The House bill creates a new tax credit aimed at lower income families that scales higher for families with younger children and lower incomes.
Overall, the Senate bill is expected to “increase economic disparities” as wealthier households see higher dollar-amount returns. The House bill is likely to reduce disparities, particularly along racial and ethnic lines, by giving low-income families bigger slices of the refunds, according to the analyses by nonpartisan legislative staff.
State Rep. Chris deGruy Kennedy, a Lakewood Democrat and sponsor of both bills, said neither result was a surprise. Targeted tax credits tend to help lower-income families, who are disproportionately families of color, while flat income tax cuts tend to help those with the highest incomes. At a bill signing ceremony at the end of May for the tax credit, officials estimated the new tax credit would cut childhood poverty in Colorado nearly in half.
“It was a balance of competing priorities,” deGruy Kennedy said, noting the benefits to kids below or near the poverty line.
The two bills passed as a package last session as lawmakers eyed billions in projected tax revenue over the TABOR cap that would have to be returned to taxpayers in some fashion. State economists still expect there to be a TABOR surplus this year, though a much lower amount than Colorado has seen in recent years. Instead of the $700-plus refunds taxpayers have seen in recent years, they should instead expect them closer to the $115 range.
DeGruy Kennedy noted that the compromise of tax cuts for more help to lower-income families will leave middle income households without children feeling the greatest pinch. They’re losing both the bigger TABOR surplus checks and won’t see as much boon from the cut to the income tax rate.
For the current tax year, the state income tax rate is being cut from 4.4% to 4.25%. That equals a total cut of about $468 million statewide. Between the smaller overall TABOR surplus to be refunded and the individual benefits of tax cuts, legislative analysts expect the approximately 2.4 million single- and joint-filers with incomes less than $107,000 per year to see less money in their pocket, between about $40 and $300 depending on their circumstances.
The about 457,000 filers with incomes of $242,000 will see the clearest benefits, with joint filers at the lower tier of that income bracket getting a net increase of about $170 while single filers at the top end will receive about $2,100 more.
The change to the TABOR refunds for families, branded as the Family Affordability Tax Credit, will give single filers at the lowest end of the income scale $3,200 per child younger than 6, and $2,400 per child ages 6 to 16. The refund amount per child scales down for every $5,000 in income above $15,000 for single filers and $25,000 for joint filers, until the family reaches an income of $85,000 for single filers and $95,000 for joint filers.
About 77,000 households at the lowest end of the income bracket will see an average of $3,500 to $4,000 from the law while those at the top end of the income scale can expect about $1,000, depending on filing status, according to the analysis. Overall, about 370,000 households are expected to benefit from the program.
Sen. Paul Lundeen, a Monument Republican and the chamber’s minority leader, sponsored the tax cut but voted against the new TABOR refund. He said he supports tax credits for families, in general, but not in this fashion. The refunds mandated under TABOR are intended to give back overpaid taxes — not redistribute those tax dollars, he said.
“The good policy, to me, is to cut taxes and invigorate the struggling economy,” Lundeen said.
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Originally Published: August 21, 2024 at 6:00 a.m.
