“Showdown” over refunds

Democrats want to rethink how the money will go out

For the Democratic majority in the state legislature, it’s not a close call: when Colorado’s economy is strong enough that the state must refund taxpayers, as is the case now, the refund money should benefit the working class before the wealthy.

As Denver Democrat and state Rep. Emily Sirota put it, “A person making hundreds of thousands of dollars, or millionaires, which exist in this state, do not need such a refund. It’s people struggling to pay their rent, to buy food, to pay for gas — those are the folks that need a bigger refund.”

The question now is whether these Democrats plan to act on their vision of fiscal fairness.

It’s a question involving billions of dollars in total, and affecting individual tax returns by hundreds of dollars. The answer, which must come in the next six weeks, will hinge largely on whether the Democrats are willing to fight Gov. Jared Polis, who stands apart from his fellow party members on this issue.

Said Boulder Democrat and Senate President Steve Fenberg, “There might be a bit of a showdown.”

Colorado’s Taxpayer’s Bill of Rights, the voter-approved conservative constitutional requirement known as TABOR, restricts state government’s budget growth, among countless other impacts on policy in this state. The state can hold onto tax revenue up to the point that revenue exceeds inflation plus population growth, and all money above that cap must be sent back to taxpayers.

This cap is why Coloradans are getting back a total of about $525 million on their taxes for the 2020-21 fiscal year. The money will be distributed in three ways: property tax relief for seniors, a temporary cut to the state’s flat income tax rate and sales tax refunds.

Polis has been celebrating the fact that — as his spokesman wrote in a statement sent to The Denver Post — “we are putting

money back in the pockets of hardworking Coloradans with a tax refund averaging $95 per taxpayer this year.”

But not everyone will get back close to $95. From the sales tax refund alone, single tax filers making under $44,000 will get back $37, while single filers making above $246,000 will get triple that, according to a nonpartisan analysis.

Those figures are troubling to statehouse Democrats, though it’s too late to do anything about them this year. It’s the 2021-22 tax filings they can yet affect, and the stakes there are much higher: analysts project about $2 billion in refunds, or roughly four times this year’s total. They project another $1.6 billion in 202223.

TABOR leaves significant flexibility for the state legislature to decide how — though not if — to administer those refunds. That Coloradans today get money back via the property tax relief, the temporary tax cut and the sales tax refund is a function of legislative decision-making, not a given. Since TABOR passed on the ballot in 1992, refund mechanisms have taken 21 different forms, with just the current three remaining.

Democrat vs. Democrat

Depending on whom you ask, Colorado’s economy isn’t as healthy as it seems. Polis and the Democrats who run the Capitol are quite nervous that state expenditures are on pace to exceed state revenues in the coming years.

This wouldn’t be a problem for them if they could hang on to all the money above the TABOR cap, but that cap means Colorado is barreling toward a structural deficit in which the state has more money committed annually than available revenue.

But TABOR is indifferent to all that. The existence of its cap is not negotiable, and, if out-year projections hold, Colorado will be refunding almost $4 billion by 2023-24. That’s why Democratic lawmakers see such opportunity now.

“I hope we find some ways to target those refund dollars to the people who need help,” said Lakewood Democratic state Rep. Chris Kennedy, “rather than … lots of dollars to wealthier Coloradans, who are doing just fine.”

They’ve run into a familiar problem, however, in Polis. His conservative positions on fiscal matters — he wants to eliminate the income tax altogether, for example — put him at philosophical odds with the Democrats in the legislature, and offer support for Republicans in the minority. The GOP doesn’t have the votes to stop Democratic policies, but those policies can’t be enacted without the governor’s signature.

“I didn’t vote for (Polis), and I won’t,” said Douglas County’s Chris Holbert, leader of the Senate Republicans. “I’d rather have a Republican governor. But it’s interesting when the Democrat governor turns away from where maybe the majority of Democrat legislators would like him to be.”

On the issue of TABOR refunds, it’s clear he’s turned away from the Democrats. While they dream of rewriting TABOR refund mechanisms in a progressive way, Polis cheerleads for this year’s $95 refund average.

Behind the scenes, he also warns Democrats not to overstep.

“The governor has some strong feelings about it,” Kennedy said.

Added Senate Majority Leader Dominick Moreno, a Democrat of Commerce City, “The governor’s office has been pretty strident in their belief that we shouldn’t make any changes to the TABOR refunds as they’re scheduled to go out.”

That means, once again, Democrats must decide whether and to what extent they want to challenge Polis. These lawmakers have backed down time and again when he’s threatened vetoes and demanded bill amendments. There is almost no precedent for them to go against his will and win, and no precedent at all for them to do so on something as consequential as a billion-dollar change to tax policy.

How this ends

The governor declined through his spokesman to be interviewed for this story. But his communications to Democratic lawmakers leave only a few possible paths.

One strong possibility, according to many people with knowledge of these talks, is that Democrats let this go, and not invite a battle.

Another is for Democrats to try to pass the policy changes they want, and dare Polis to veto them. That appears unlikely.

A third option is to try to find compromise. Sirota mentioned one idea: reforming the refund mechanism such that everyone, regardless of income, would get back the same flat sum. That isn’t a progressive policy, per se, but it does shift more money from the rich while still allowing Polis to credibly tout that everyone is getting back a heap of cash. With $2 billion in refunds for 2021-22 and a flat refund, single filers would all get several hundred dollars, nonpartisan analysis indicates.

“It’s something that’s been discussed,” Sirota said.

That’s but one idea being kicked around. Greenwood Village’s Jeff Bridges, a Democratic state senator, told The Post he’s exploring ways to bolster tax credits for poor and middle-class folks, either through expansions of the Child Tax Credit or the Earned Income Tax Credit — or both. Bridges said he might try to add those credits into an existing bill pending at the legislature.

He said he wouldn’t ask to use all of the money above the cap for this purpose, “but enough to make a meaningful difference in people’s lives.”

These Democrats must pick a path soon. If they wish to tinker with refund money for the 2021-22 fiscal year, they only have the final day of the legislative session — May 11 — to do so, barring a highly unlikely special session to review this matter.

Adding to the urgency for the Democrats is the fact that Colorado families have now been without the expanded Child Tax Credit for three months. This pandemic-era program had been sending some $260 million every month to the state, which helped alleviate financial stress for the parents of about 1 million Colorado children. Poverty is back on the upswing, with the expanded Child Tax Credit gone.

Holbert, the Senate minority leader, said Democrats would be foolish to try to fix that problem by messing with TABOR refunds. He’s got a powerful friend in the fight.

“This is an example of where the governor is more aligned with the Republican side,” Holbert said. “I think that’s a fascinating dynamic.”