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DENVER — Individuals and businesses paying Colorado taxes will continue to get more than half a billion dollars in tax relief each year, regardless of the fates of a pair of budget-stabilization proposals on the Nov. 1 state election ballot.
That’s because the Legislature permanently lowered state tax collections through more than 30 laws adopted in its 1991, 2000 and 2001 sessions.
Those permanent tax breaks — enacted when state revenues were far exceeding growth limits allowed by the Taxpayer’s Bill of Rights — provided an estimated $552.8 million in tax relief during the 2004-05 fiscal year, which ended June 30, according to Gov. Bill Owens’ Office of State Planning and Budgeting.
The largest impact came from permanently reducing the state’s sales and income-tax rates, actions the OSPB staff said “directly and immediately benefit all state taxpayers through lower tax payments.”
Effective Jan. 1, 1999, Colorado’s flat income-tax rate fell to 4.75 percent from 5 percent of federal taxable income. Lawmakers dropped the rate even further, to its present 4.63 percent level, effective Jan. 1, 2000.
Taxpayers saved an estimated $335.4 million in fiscal 2004-05 from that pair of rate reductions, the OSPB estimated.
Lawmakers also lowered the state’s sales-and-use tax rate, from 3 percent to 2.9 percent, as of Jan. 1, 2001. That translated to an estimated $90.6 million in relief for state taxpayers in 2004-05, the OSPB estimated.
Owens and state lawmakers decided to proceed with those and other permanent tax cuts because state government was having to give Coloradans back hundreds of millions of dollars in annual “TABOR surpluses” that the state Constitution did not allow it to keep and spend.
“To reduce the size of the TABOR surplus, the governor and the General Assembly decided to let the citizens of Colorado keep their money rather than turning it over to the state only to have it refunded back to citizens the following year,” Owens’ OSPB staff wrote earlier this summer in a review of the impacts of the permanent tax breaks.
Other tax relief enacted at the time ranged from reductions of severance taxes on mined metals and on oil and gas production, to sales tax exemptions for purchases of such items as farm equipment, pesticides used in agricultural products, coins and precious metal bullion, food sold in vending machines, and bingo equipment.
The permanent tax cuts reduced but did not wipe out TABOR surpluses in the initial years they were in effect.
State law also provides for a number of other ways of returning above-the-limits collections when they occur, including a number of so-called forms of “temporary TABOR refund” mechanisms, and that’s how the state gave back the rest.
The OSPB reported that Coloradans got $927.2 million in various TABOR-surplus refunds in 2001-02, for example. But the agency added that those TABOR refunds and tax credits would have totaled $1.4 billion if the permanent tax cuts had not also been in place.
The tax cuts remained in effect even when the Colorado economy slumped and state revenues fell below TABOR’s allowable limits after the recession hit.
Some lawmakers later voiced second thoughts about the permanent tax cuts they’d approved. They said that if they’d instead relied on returning money through TABOR refunds, actual state tax collections might not have fallen so sharply, and budget cuts would not have had to be so deep.
GOP Gov. Owens, however, pointed out at the time that support for the permanent tax cuts had been bipartisan, with many Democrats agreeing with their adoption by the then-Republican-controlled Legislature.
At any rate, it was too late for the Legislature to undo what it had done in 1999 through 2001. Under TABOR, voters must approve any new tax or tax-rate increase, including any attempt to restore taxes to their previous rates.
Even at those tax lower rates, the state is once again beginning to experience TABOR surpluses.
Referendum C, supported by Owens and bipartisan majorities of current Senate and House members of what’s now a Democratic-controlled Legislature, asks voters to allow the state to keep and spend a projected $3.7 billion in above-TABOR-limit collections over the coming five years that otherwise would have to be refunded to Coloradans.
If voters go along with the idea — and also approve Referendum D, a companion bonding measure — the state proposes to spend the money on health care, public education, transportation projects, and local fire and police pension programs.
Referendums C and D do not, however, ask voters to restore any of the permanent tax cuts enacted in 1999, 2000 and 2001. Taxpayers will continue to benefit from those permanent tax breaks regardless of the election’s outcome.
Owens, for one, has cited the earlier tax cuts as an illustration of his record as a fiscal conservative, which some fellow Republicans have questioned in light of his support for the referendums.
But FreedomWorks, one of the organizations working against C and D, says on its Web page that the measures should be defeated because “taxes are already too high.”