Fixes to code up in the air

Democrats, Republicans and the governor all want to change Colorado’s income tax.

The problem is, they have three different ideas about what that change should look like.

Gov. Jared Polis wants a permanent cut in the state’s existing flat tax, but he wants to compensate for the revenue loss by eliminating unspecified tax breaks. Republicans want a permanent cut without ending tax breaks. And Democratic lawmakers, who control the state House and Senate, are more interested in progressive taxation, in which people who make more money pay a higher percentage of their income.

“An across-the-board tax cut is a nonstarter for me,” said state Sen. Dominick Moreno, a Commerce City Democrat and the state’s No. 2 ranking budget writer.

“That’s what (Polis) wants, and he can continue to ask all he wants for it, but the legislature — we determine tax policy. I understand the governor wants it, but it’s a nonstarter for me and, I think, for many of my colleagues.”

The tangle of policy ideas doesn’t mean Colorado’s income tax won’t change in the near future. In fact, it could change in any of a few different directions — but voters, not lawmakers, might be

the ones to decide the course.

Polis’ tax plan

Polis, in his second year as governor, continues to push an across-the-board cut of Colorado’s 4.63% flat state income tax rate — a policy proposal he campaigned on in 2018, and which he now says he wants done by the end of his first term.

There are currently about 200 different tax credits, exemptions and deductions in Colorado, and the governor believes that some should be eliminated to compensate for the hundreds of millions in lost annual income tax revenue from an across-the-board cut.

The Post reached out to the governor’s office to ask which specific credits, exemptions and deductions Polis wants to scrap. Spokesman Conor Cahill said the governor plans to convene a study group to consider that question.

“At this time it would be premature to discuss what this bipartisan group might look into,” Cahill said in a statement. “However, the Colorado code is riddled with hundreds of credits, exemptions and deductions and the Governor hopes the group will examine those loopholes and the ones that benefit special interests while hardworking people are stuck running the economic treadmill.”

This year, for the first time, the Taxpayer’s Bill of Rights (TABOR) and the state’s strong economy triggered a temporary reduction of the income tax rate, down to 4.5%. That rate is only guaranteed for the 2018-19 fiscal year, which means citizens can expect a bit more cash come tax season this year, but not necessarily next year.

The governor’s office also did not answer a question about just how low Polis believes the income tax rate should be. However, he praised Republicans Jerry Sonnenberg, a senator from Sterling, and Rod Pelton, a representative from Cheyenne Wells, last year for proposing to cut the rate to 4.49%, and tweeted that he wants to go “even lower.” Sonnenberg is skeptical. “We call that out in the country ‘all hat and no cattle,’ because he hasn’t stepped up to be helpful,” Sonnenberg said. “I sat in his office last year and he told me he liked my income tax bill. He said, ‘I campaigned to cut taxes.’

“It’s hard to pad your record with just flapping your gums.”

2020 ballot plans

Polis doesn’t need Republicans, but he would need his fellow Democrats to cut taxes in the legislature. Capitol Democrats — progressives and moderates alike — say a return to a graduated income tax schedule in Colorado is more consistent with their agenda.

Many of them are preparing to support a possible 2020 measure to bring back progressive taxation. Lawmakers have the power to cut taxes, but any increase needs voter approval.

“The only conversation that I’m interested in is a conversation about ensuring that the wealthy and well-connected pay their fair share in taxes,” said state Sen. Julie Gonzales, a Denver Democrat who, along with Denver Democratic Rep. Emily Sirota, engaged in an op-ed dispute with the governor earlier this month.

Details for a potential ballot measure are still being worked out — and it could have conservative company.

Republicans are once again running a bill in the statehouse to lower the income tax rate, but it’s certain to be killed by Democrats at the committee level. Sonnenberg said he’s in talks with The Independence Institute and other conservative groups about petitioning to put it on the ballot.

The last time Colorado voters had the chance to approve a progressive tax was in 2018 — it would have raised money for education — and they rejected the idea.

But before they get a chance to weigh in again, reform-minded lawmakers need to settle on a plan.

Senate Majority Leader Steve Fenberg, a Boulder Democrat, summarized where that conversation stands: “Some people just want to keep trying everything and see if something finally passes. Other people think we need to make it the perfect thing to have something finally pass. And there’s another camp that wants to sit 2020 out because we’ve had too many losses.”

Failed talks

If it weren’t for summer vacation, Colorado’s income tax rate might already have gone permanently down, and Polis might have gotten his win.

By midsummer of 2019, it was clear to many Democrats that Proposition CC — the ballot measure written by Democratic lawmakers that proposed to eliminate the TABOR refund and use the revenue on schools and transportation — was in trouble.

Seeking to make it more palatable to Republicans, and thus more likely to succeed at the ballot, lawmakers and Polis talked throughout July about whether the governor should call a special legislative session to allow lawmakers to revise CC.

A number of compromises were floated, and one that the governor supported involved coupling the elimination of the TABOR refund with a permanent state income tax cut, down from 4.63% to somewhere closer to 4.58%. The plan would’ve been revenue-positive for the state.

For a variety of reasons — including lack of consensus between and among caucuses, and the fact that many lawmakers weren’t in Denver for the summer — a deal was never reached. CC stayed as it was written, without a Polis tax cut and without Republican backing.

The campaign that Democrats did throw together at the 11th hour — its public face was House Speaker KC Becker — received fierce pushback from the GOP and only lukewarm backing from Polis. He spent Election Day in Asia, and CC failed.