TABOR: Restrictive Tax Policy Holds Colorado Back

November 8, 2017 Bell Policy Center Staff
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Facts, Fiscal Policy

Fiscal policy can be very difficult in Colorado, due to the constitutional provision known as the Taxpayer’s Bill of Rights (TABOR). TABOR was passed in 1992 and contains many provisions that tie the hands of policymakers trying to reform our tax code and budgets. In many ways, TABOR has led to significant economic inequality in Colorado and has exacerbated national trends around wealth and income inequality in our state.

As is stands, Colorado families today making less than $156,000 per year actually see a larger percentage of their income go to taxes 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. 

In addition to having to vote on tax increases (and not tax decreases), having a ceiling on available public revenue (regardless of how much revenue actually comes in to the state), Colorado is prohibited from having an income tax that goes up depending upon how much a person makes. This is also known as a progressive income tax.

Furthermore, TABOR prohibits Colorado from having a local income tax or a statewide sales tax. This has led to high local taxes — which tend to be more regressive — in order to fund services, like first responders, roads, schools, and other vital programs.

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’s Bill of Rights, a constitutional amendment designed to shrink 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 — which continued to reduce the budget ceiling because of sharp revenue drops in previous years — prevented the state government from using the growing revenues to restore vital programs. That year, legislators and former Gov. Bill Owens (R) 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.

CURRENT TABOR CHALLENGES

In 2011, local governments and state lawmakers sued the state under the allegation that TABOR is unconstitutional because prohibiting elected officials from the ability to tax violates a “republican form of government.” The case is winding its way through the court system.

In 2019, three members of the 10th Circuit Federal Court of Appeals ruled the case should be tried in federal court, as opposed to state court. Attorney General Phil Weiser asked the entire 12-member Court of Appeals to hear the case and make a final determination. As of 2021, the case is still pending.

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