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Colorado income tax reduction measure would boost private sector

Colorado income tax reduction measure would boost private sector, ‘magnify’ public sector’s budget woes, report says

AP Photo/David Zalubowski
Election judge Michael Michalek, left, directs voter Nicholas Garza on where to pick up his ballot at a drive-thru location outside the Denver Election Commission building, Tuesday, June 30, 2020, in downtown Denver.

(The Center Square) – A measure to cut Colorado’s income tax rate would provide a boost to the private sector amid the economic recession and “magnify some of the strain it’s caused the public sector,” a report released Thursday said. 

Colorado voters will decide on Proposition 116, the State Income Tax Rate Reduction initiative, which seeks to cut the statewide income tax rate from 4.63 percent to 4.55 percent.  

If passed, the state's general fund would see a $158.4 million revenue reduction in fiscal year 2020-21, and a $169.8 million reduction in fiscal year 2021-22, according to a fiscal report. 

Under the 4.55 percent income tax rate, individuals making $50,000 a year would save $40 each year. 

The report, published by the Common Sense Institute, a free enterprise think tank, developed two scenarios using “dynamic economic and state fiscal impact” modeling to estimate how many jobs would be lost or gained in the private and public sectors. 

If passed, the measure “will have the effects of reducing state revenue and adding private-sector wealth,” the report said, adding that “the true impact of the tax cut will depend upon the extent to which the state government manages a tighter budget by reducting the growth in government jobs.” 

In one scenario, where the government cuts public jobs in response to lost revenue, the private sector would gain 896 jobs and the public sector would lose 1,514 jobs each year on average over the first five years.

In a second scenario, where the government doesn’t cut public jobs but reduces spending, the private sector would gain 1,384 jobs and the public sector would gain 132 jobs each year on average over the first five years.

“The net impact is a reduction in employment against the baseline of up to 324 or an increase of up to 1,670,” Common Sense Institute said.

The Bell Policy Center, which opposes Proposition 116 and backed a failed progressive income tax measure, released a brief this week on the state’s tax system, arguing that the state’s Taxpayer Bill of Rights and the Gallagher Amendment “make funding services difficult in Colorado and increase inequity in the tax code.”

Americans for Prosperity-Colorado Issue Committee, one of the groups backing the measure, argues that “reducing the state income tax would help keep more money in the pockets of hard-working Coloradans to help make ends meet, support their families, and invest in their communities.”

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