Colorado TABOR tax rebates used for child, decarbonization credits

A chunk of Colorado’s forecasted tax rebates could be directed toward tax credits for parents and low- to moderate-income residents and to promote decarbonization under a slate of proposals from Democratic legislators.

The proposals wouldn’t eat the entirety of some $2 billion in projected rebates in coming years, but show a willingness by legislative leaders to tap into excess revenues — ones otherwise slated for blanket refunds to taxpayers — for policy priorities.

“We look to that surplus and certainly want to find ways to think about using dollars in the right way for the people we serve,” House Speaker Julie McCluskie said.

In Colorado, the Taxpayer’s Bill of Rights, or TABOR, caps how much revenue the state can collect. Anything collected in excess of it needs to be returned. Lawmakers have historically used different mechanisms for those rebates, most recently the $750 “Colorado Cashback” checks that went out last fall.

McCluskie, a Dillon Democrat, highlighted the income and child tax credits (about $150 million over two fiscal years), so-called decarbonization tax credits for things like electric vehicles (about $86 million), and $200 million set aside for property tax relief as “ways that we can think about funding that is coming in over the TABOR in the right way to do good things for the state.”

Tapping into surplus revenues isn’t a new tactic. Colorado has supplemented the federal child tax credits and earned income tax credits for years, though this year lawmakers seek to boost that supplement further. But the proposals stand out in a year with a tight discretionary budget while forecasters predict billions in TABOR surpluses over the next several years.

“We’ve gotten to the point of ridiculousness that there’s so much money over the cap, that there’s no way policymakers can’t look at that as part of how to solve some of our issues,” Scott Wasserman, director of the progressive Bell Policy Center, said.

The highlighted provisions represent but a fraction of the predicted amount of refunds due under TABOR. Targeting the refunds through these proposals instead steers that money toward benefits that are a “great, meaningful multiplier” to Colorado and its residents, as state Rep. Shannon Bird described the bill expanding the earned income and child tax credits.

That bill, HB23-1112, increases how much tax filers receive from the earned income tax and child tax credits, so the dollar amount depends on what those people qualify for. It would add 40% to what they get from the federal earned income tax credit program, up from 25% now.

The boost to the child tax credit scales on the filer’s income level: 70% for single filers with an adjusted gross income of $25,000 per year and scaling down to 20% for single filers earning $50,001 to $75,000 — a 10% increase. There are separate tiers for joint filers. It could mean extra hundreds, or even thousands, of dollars for Colorado families when they file their taxes.

The targeted nature gives the rebate a dual impact, Bird said. The families that qualify need it the most, and families that need the money are probably going to spend it quickly, putting it back into the state economy, she said.

“This really is an important tool for helping working families become more financially stable and give opportunity for their kids,” Bird said. “… If we can make sure our tax code treats people fairly, this is a way to give people the financial stability that they are working so hard to achieve.”

She invoked the now-expired federal tax credit championed by fellow Colorado Democrat U.S. Sen. Michael Bennet. That pandemic-era program sent direct checks to all families through an expansion of the federal child tax credit. The U.S. Census Bureau credited it with nearly halving childhood poverty and benefiting millions more.

That proposal and the tax policies to promote decarbonization, HB23-1272, are still working their way through the legislature, where Democrats have a supermajority in the House and are one vote shy of it in the Senate. So far, the opposition typically associated with fights over TABOR has been relatively muted.

The proposals do, after all, still return excess tax dollars to Coloradans, Michael Fields, executive director of low-tax advocacy group Advance Colorado, said. He’d prefer the rebates be returned broadly and tiered based on how much individuals overpaid — and not go to special interests — but this doesn’t cross his line of government keeping money it shouldn’t.

“Do TABOR refunds go back to the people or does the government keep them?” Fields asked. “As long as it goes back to the people and doesn’t grow government larger than it already is, it’s a win for taxpayers.”

He did raise concerns about a lack of consistency with tax rebates. Taxpayers received a flat rebate in the fall, regardless of income level, while legislative leaders expect next year’s TABOR rebates will be returned based on the six-tiered income level system.

Not every budget year is the same, either. Supporters, opponents and those in between noted that surpluses won’t always exist. An earlier proposal of the child tax credit bill, for example, covered two years. The version progressing through the legislature now only covers one. Bird framed it as fiscal prudence.

State Sen. Rachel Zenzinger, the Democrat who chairs the powerful Joint Budget Committee, noted the inherent risk of relying on tax credits from surplus revenue to promote policy. If the economy takes a downturn, policymakers will have to decide if they continue them at the cost of revenue for other state programs, or cutting it off. And some credits have different aims, she said. The decarbonization credit, for example, is aimed at the longer-term fight against global warming, while the family tax credit is about immediate help for families who may need it now.

“It’s really hard to wean yourself off of them, depending on what you’re getting out of them,” Zenzinger said.

Neither are all tax credits the same, state Rep. Matt Soper, a Delta Republican, said. The earned income tax credit has support in his caucus, he said, while he described the proposal to give tax credits for e-bikes as the state subsidizing specific activities.

“When it comes to tax credits, we shouldn’t be picking winners and losers,” Soper said. “So for a family tax credit concerning child care, that’s going to impact many Coloradans, particularly anyone that has a family that can take advantage of this. When we’re having a tax credit for an e-bike, quite frankly, that’s pretty bourgeoisie. That’s only affecting the very wealthy of Coloradans.”

As a policy tool, some advocates see the full potential of the surplus as still untapped. Wasserman, the advocate for more progressive tax policy, noted that TABOR doesn’t discriminate based on where the money comes from, just that more revenue than allowed under its formula is coming in. And that poses an opportunity to more equally distribute that economic growth, Wasserman said, even if he disagrees with the principles of TABOR.

“It’s all about improving people’s lives, right? That’s why we’re down here,” Wasserman said from the Capitol. “And if you can’t do it directly through a government service, then you’re going to do it through a tax credit. And that has policy implications.”

The General Assembly’s leading Democrats see it in similar framing. Senate President Steve Fenberg, a Boulder Democrat, called the child and earned income tax credits in particular “some of our most powerful tools to create a more equitable tax system.” Their use needs to be tempered based on available money, however.

“It’s a tool that I think we want to continue using,” Fenberg said. “It’s just going to depend on the year and the budget and how much breathing room we have.”

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