There is a new initiative, 31, on the ballot next year that will reduce the income tax rate in Colorado. How much will you save? (hint don’t get too excited) What impact will this have on the state of Colorado budget? (hint nowhere near what the state is predicting).
Initiative 31 details
Colorado voters will decide next year whether to further reduce the state’s income tax rate. The Colorado Secretary of State’s Office said Thursday that supporters of Initiative 31 collected enough signatures to get their question before voters in 2022. They needed at least 124,632 signatures to qualify for the ballot.
Initiative 31 will reduce income tax rates from 4.55% to 4.4% starting in the 2022 tax year assuming this measure is passed by voters.
How much does the state say initiative 31will cost their budget?
The measure decreases state General Fund revenue by an estimated $572.1 million in FY 2022-23 and $397.9 million for FY 2023-24, with ongoing decreases in later years. The estimate for FY 2022-23 represents a full-year impact for tax year 2022 and a half-year impact for tax year 2023, because the measure takes effect after completion of FY 2021-22. The measure decreases income tax revenue, which is subject to TABOR.
The state budget analysis left out one important detail: Inflation
The assumption is that wages stay the same, but that couldn’t be farther from reality. Let’s use a quick example of the Janitors at Denver International Airport. They recently went on strike around the Thanksgiving holiday and negotiated a 20% plus increase in their wages. These higher wages will pay a higher amount in taxes. Here is a quick analysis.
| $/hour | Annual | current tax (4.55%) | Proposed (4.4%) | |
| Base wage 2021 | $ 15 | $ 23,400 | $ 1,064.70 | |
| Base wage 2022 | $ 19 | $ 29,640 | $ 1,348.62 | $ 1,304.16 |
| Percent change | 27% | 22% |
With the huge jump in wages Janitors at DIA will pay substantially more in taxes. The proposed tax cut will save the average Janitor 5%, but this will still be a 22% increase in taxes paid to the state of Colorado. The example above of janitors at DIA are just one example of the huge inflationary pressures on wages as inflation is substantially increasing wages throughout the state especially for lower paying jobs.
Summary:
Long and short, the fiscal analysis done by the state is not even close to reality as they left out a key variable. With rising wages due to inflation, tax bills are going to increase substantially (this is on top of huge increases already in shelter costs due to substantial property tax increases). With the way things are heading, inflation looks set to continue upward pressure on wages and in turn income taxes which will lead to a net increase in revenue for the state regardless if initiative 31 passes.



