Colorado’s state and local tax burden was the sixth lowest in the U.S. in fiscal 2016, according to a recent report produced Key Policy Data (KPD), a joint venture between Public Choice Analytics and Visigov.
The report relies on an income-based analysis dividing the state’s total tax collections by its private sector personal income. The national average using this methodology was an overall local and state tax burden of 14.3 percent of income; Colorado’s was 11.8.
KPD compared the burden of tax systems across states by measuring tax collections against the size of the economy. It defines this as the “total private sector share of personal income, which is personal income minus government compensation and personal current transfer receipts” such as Social Security, Medicare and Medicaid.
Colorado collected $25.4 billion in state and local taxes – or $4,590 for every man, woman, and child, according to the report.
KPD attributes Colorado’s relatively low state and local tax burden to the “trail-blazing” Taxpayer Bill of Rights (TABOR), which voters approved in 1992.
The Independent Institute published a comprehensive study about TABOR, which identifies Colorado’s economic state and tax burden before TABOR and during its first two decades.
“In the decade before the enactment of The Taxpayer’s Bill of Rights [1983-1992], Colorado’s population and inflation grew by a combined 50 percent," the institute's study says. "Yet state government revenues grew by 133 percent and state government spending by 119 percent. In other words, government taxes and spending were growing at over twice the rate of the population and the price level increase.”
The Independent Institute found that in the first decade that TABOR was implemented (1993-2002), population-plus-inflation grew by 71 percent. During the same time period, government revenue increased by 77 percent and government spending rose by 85 percent.
“TABOR achieved its objective of bringing tax growth and spending growth closer in line with the economic environment,” the institute argues.
During the second decade of TABOR (2003-2012), Colorado voters were asked to approve the largest tax increase in Colorado history, and they did. They were also asked to approve a measure that would allow the state government to borrow a large sum of money, which they rejected. The state gained an additional $3.6 billion in revenue over the specified five years of the tax increase.
After five years, the government revenue baseline was reset at a permanently higher level. The Independent Institute notes that taxes were $6.2 billion higher from FY 2010-11 through FY 2013-14, which equated to a tax increase of $1,909 per person, or $7,637 for a family of four. It also reports that population-plus inflation rose 37 percent, tax revenues rose 83 percent, and spending rose 76 percent.
The institute states that Colorado’s economy “performed significantly better than the national economy” during the first decade that TABOR was implemented.
“This was not true for the pre-TABOR decade, nor was it true during TABOR Decade-2, the decade of the largest tax increase in Colorado history,” its analysis concludes.
J. Scott Moody, director of the Family Prosperity Initiative, said that the purpose of the KPD study was to “put the tax burden into better context by measuring it against the size of the private sector (as measured as a percent of personal income). Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.”
The KPD analysis also calculated the local government tax burden for every county. It lists the 20 counties that have the least and most expensive tax burdens in the state. The five counties with the highest local government tax burden are Rio Blanco (45.7 percent), Lake (41.9 percent), Bent (21.9 percent), Gilpin (21.6 percent), and Grand (17 percent). The five counties with the lowest local government tax burden are Crowley (4.5 percent), Jefferson (4.5 percent), Douglas (3.7 percent), Broomfield (3.3 percent), and Elbert (2.9 percent).
Accompanied with charts and a video, KPD compares Colorado’s 11.8 percent tax burden to the state’s combined industries of manufacturing (5.8 percent), retail trade (5.3 percent), and utilities (0.6 percent). It notes that since fiscal 1950, the state’s tax burden increased from 11.5 percent to 11.8 percent in fiscal 2016.
“The low tax burden has allowed Colorado’s private sector to grow and flourish. This has created a tremendous pull of people as more than 900,000 [more] people now call Colorado home between 1991 and 2017,” Moody added.
According to KPD’s analysis, all state and local governments in fiscal 2016 collected an estimated $1.5 trillion in taxes nationally. They include property, sales and excise, individual income, corporate income, licenses, severance taxes, and others. It calculated that these state and local taxes consumed 14.3 cents of every dollar earned in America, or 14.3 percent of personal income.