$70 income tax refunds coming to Coloradans, but eliminating the tax would save average of $3,300 a year

Data Desk

Money from the child tax credit advance could be a lifeline for many.
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DENVER (KDVR) — Gov. Jared Polis will have a big hole to plug if he plans to erase the state’s individual income tax.

The state controller’s office announced on Sept. 1 that Colorado had collected enough in state income taxes to lower the rate from 4.55% to 4.5% and give every Coloradan a $70 refund.

Polis said the income tax surplus points to a vigorous recovery from the pandemic’s economic woes.

“These tax cuts and refunds are a strong sign that Colorado’s economy is roaring back,” Polis wrote in a statement. “I’m excited that Coloradans will get another income tax cut and refund that Coloradans can put toward bouncing back from the pandemic, a night out or groceries.”

What if the Colorado income tax were eliminated?

Recently, the governor put a thought in the air that could eliminate tax refunds entirely. Polis floated the idea of eliminating state income tax at a recent conservative political conference.

A Colorado without an income tax would make this year’s $70 refund and tax cut look like candy money. According to the U.S. Census Bureau, the median Colorado household income from 2015-2019 was $72,331 — meaning the average household would keep about $3,300 a year without an income tax.

Without it, the state would have had an $8.6 billion budget hole — the amount the state took in income taxes in 2019-20 fiscal year.

Democrats oppose even the suggestion, and getting any tax repeal through a Democrat-controlled state legislature would be a hurdle. The state’s budget itself would be another.

Polis hinted that pollution or carbon taxes may fill the void, but they would need to fill a huge hole if so. The state’s individual income taxes are the Colorado government’s largest single source of income.

According to records from the state controller’s office, income taxes typically comprise between one-fourth and one-third of the state’s annual revenue.

In the last three years, they’ve become the highest percentage of the state’s annual revenue yet, at 34% or 35%.

Income taxes have gotten much larger than only 15 years ago. Colorado has more people to tax and higher household wealth.

Between 2005 and 2020, the average household income in Colorado grew more than 30%, from $50,000 to $73,000. In the same stretch of time, the population grew by more than a million people from 4.7 million to 5.8 million.

Colorado is one of 10 states with a flat income tax rate. Income taxes soared more than 230% higher in 2020 than they were in 2005.

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