Taxes & Spending

Colorado’s income tax battle explained

Colorado's income tax battle explained

A tidal wave crashed across Colorado Tuesday night. Unlike the real floodwaters that ravaged our state in September, the political tidal wave brought relief.

Close observers were almost unanimously stunned by the force of the blow that capsized Amendment 66. The proposal to raise state income taxes by a billion dollars a year was soundly rejected by 65 percent of voters.

For years, Colorado has served as the Left’s political guinea pig. The 2010 book The Blueprint by Adam Schrager and Rob Witwer documented the phenomenon. More recently, the experimentation has been witnessed in our state legislature’s controversial gun control push. Since Governor Hickenlooper signed the new restrictions into law, two Democratic lawmakers have been recalled from office—so far.

This year’s well-funded push to raise taxes, manned on the ground by Obama operatives, backfired in another way.

Amendment 66 would have replaced the state’s 4.63 percent flat rate with a two-tier system. Not counting the painful impact on families across the spectrum, the 95 percent of Colorado small businesses that file through their personal income taxes would have effectively paid 27 percent more on all earnings over $75,000.

Backers pitched the dramatic tax increase as a “grand bargain” to rewrite the school funding formula. Amendment 66 offered a permanent constitutional change as a way to fund Senate Bill 213, the “new school finance act” lawmakers adopted this year.

A major pro-66 TV ad blitz touted an array of goodies that would come with the new tax revenue—more music and gym teachers and classroom aides while not adding any dollars to administration. However, multiple media fact checks pointed out that none of the promises had any basis in SB 213’s 141 dense pages.

The pro-66 “Colorado Commits to Kids” campaign reported raising more than $10 million, with $4 million coming from teachers unions and another cool million chipped in by ultra-rich New York City Mayor Michael Bloomberg (who also financed opposition to the gun-related legislative recalls). The “No on 66” issue committees raised less than 1 percent of that amount.

Some others latched on to Amendment 66 as a way to protect Colorado’s reform of educator evaluations. Passed in 2010, SB 191 requires student test measures to be included in evaluations and weakens tenure protections.

As the campaign wore on, though, more business groups moved from neutrality to active opposition. Many of those decisions were aided by news of a union-negotiated deal. The deal extended unions’ opportunity to legally challenge the implementation of SB 191 until after the election.

But Colorado voters weren’t fooled into first surrendering more tax dollars “for the children.” In fact, they rejected 66 by a wider margin than they rejected 2011’s Proposition 103, a combined sales and income tax increase backed by a much smaller war chest.

Boulder state senator Rollie Heath was the driving force behind 103, but took second stage this time around to his younger and more telegenic Democratic colleague Michael Johnston.

As a senate rookie, Johnston led the charge to carry SB 191 reform through the state legislature, building a bipartisan coalition that overcame union lobbying and a rare outpouring of emotional angst from the Golden Dome.

SB 213 was anything but bipartisan. The Democratic coalition failed to woo a single vote from the Republican minority. The majority rebuffed attempts to bolster the bill with amendments that would tie some dollars to performance or give all charter schools full funding parity (despite claims from 66 supporters).

The final proposal ended up being light on reform. Instead, voters were faced with a convoluted formula that sought to redistribute tax dollars from suburban and mountain communities. SB 213 also would have funded children with identical characteristics differently based on district-level concentrations of at-risk students.

Colorado’s resounding rejection of Amendment 66 sends policymakers back to the drawing board. Our state now should choose the path of raising expectations rather than taxes. A real pro-student, cost-saving education reform idea like scholarship tax credits, on the books in 13 other states, ought to be near the top of the agenda.

Meanwhile, more opportunity for local education innovation emerges. Amendment 66 turned out fiscally conservative voters in droves. Those voters crucially helped to re-elect a unanimous majority to the Douglas County school board, notable for adopting a private school choice program and other cutting-edge changes. They also helped to forge new reform majorities in Jefferson County (the state’s largest school district) and Loveland.

The union and billionaire contributions to grow government coffers may have been in the blueprint, but that outcome certainly wasn’t.

Ben DeGrow (ben@i2i.org) is senior education policy analyst for the Independence Institute, a free market think tank based in Denver, Colorado.

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