TABOR: Restrictive Tax Policy Holds Colorado Back

As economic inequality continues to grow and solutions to close the gap are being debated, conversations across the country are more seriously focusing on how to make our tax system fairer. That conversation is nearly impossible in Colorado, because TABOR constitutionally prohibits different tax rates for households with different incomes.

As is stands, Colorado families today making less than $156,000 per year actually see a bigger portion of their paycheck go toward tax liability than wealthy Coloradans. This disparity will continue if changes aren’t made to TABOR.

While debates surround some of TABOR’s more well-known components — the artificial ceiling on public revenue when times are good and the right to vote on every tax change impeding modernization of Colorado’s tax system —  the ban on asking wealthier Coloradans to pay their fair share hasn’t gotten as much attention. 

It’s time for Coloradans to take a closer look at the details buried within TABOR to see how it’s limiting our options to create a better state.

TABOR: How it Started

In 1992, Colorado voters approved the Taxpayer Bill of Rights, a constitutional amendment designed to restrain growth in government. It took the acronym TABOR, which has extra meaning in Colorado, as some of the state’s history was shaped by the famous mining baron of the late 1800s, Horace W. Tabor.

Related: Understanding TABOR: The First Steps

Applying to all levels of government in Colorado (state government, cities, counties, school districts, and special districts), TABOR says voter approval is needed to raise tax rates or allow government entities to spend money collected under the existing tax rate if revenues grow faster than the rate of inflation and population growth. If voters don’t approve the latter, excess revenue must be refunded to taxpayers.

Related: Projected TABOR Rebates in 8 Charts

Passage came at the start of nearly a decade of record economic growth in Colorado, the Rocky Mountain region, and the country. During those years, TABOR limited the amount of revenue governments could collect and spend. Taxpayers received refunds on their state income taxes, and mill levies were suppressed to prevent governments from collecting too much in property tax.

Related: 10 Years of TABOR

While most states operate with some tax or spending limits, TABOR is the most restrictive in the country. Some believe this restraint is necessary. However, for a government to be effective, it must be responsive to changing economic conditions and the needs of its citizens. The Bell’s research experts spent years studying the impact of TABOR on Colorado’s budget and its programs, particularly those in place to increase opportunity for Colorado residents. Our research shows TABOR’s structural flaws have seriously impaired Colorado’s ability to set budgetary and program priorities and respond to crises, as evidenced during the recession of 2001-2003. In short, TABOR has created a state government that is hamstrung by inflexible rules, making it unresponsive and less effective.

previous TABOR Reform

With the recession of 2001-2003, the negative impacts of TABOR became apparent. Tax revenues fell and the state government only had a 4 percent cushion to fall back on. Lawmakers were forced to make budget cuts, accounting for hundreds of millions of dollars.

Related: Understanding Referendum C

By 2005, Colorado’s economy made strong gains, but the measure’s ratchet effect prevented the state government from using the growing revenues to restore vital programs. That year, legislators and former Gov. Bill Owens crafted a bipartisan budget compromise to give Colorado’s state government a five-year timeout from TABOR’s revenue and spending limits.

Related: Fiscal Prospects After Referendum C

Following the voter approval requirements, the measure was referred (called Referendum C) to the state’s voters. It was approved in the November 2005 election.