Carroll: How do Colorado's taxes actually compare?
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Gov. John Hickenlooper speaks during a rally launching the public campaign for Initiative 22, at Green Mountain High School in Lakewood on Aug. 15. The measure would increase income taxes to pay for education, including statewide full-day kindergarten. (Brennan Linsley, The Associated Press)
"This is a proposal that keeps Colorado's tax rate competitive with other states while providing substantial return on investment," Gov. John Hickenlooper said recently about the ballot measure to hike income taxes by $950 million for K-12 education.
Assuming the measure clears the state's signature-checking process, you're going to hear a lot of competing claims regarding taxes in the next two months.
So it's worth taking a few minutes to sort out the facts.
How do Colorado's taxes compare to other states'?
The two statistics you're sure to hear most often from supporters of the education tax are the following: Colorado has the third-lowest state taxes in the nation and sixth-lowest total taxes when state and local levies are combined. Those figures come from a 2012 analysis by the Colorado Legislative Council, based on tax collections for fiscal 2008-09 (updated figures could be released soon, but they'll be similar).
Meanwhile, backers of the ballot measure maintain that even if it passes, Colorado would still rank 40th in combined state and local taxes.
As with most statistics, however, these come with footnotes. To begin with, the Legislative Council was measuring taxes collected per $1,000 in income. And while that's a useful indicator for certain purposes, it's by no means the only one — let alone the measure most voters might be interested in. In 2011, for example, the Legislative Council produced a memo that also included Colorado's total tax burden calculated on a per capita basis. That ranking was 25th — or smack in the middle of the nation. And it is almost identical to one produced last year by the Independence Institute, which placed Colorado 26th in "total tax burden per capita."
The Washington, D.C.-based Tax Foundation, which has been comparing taxes across state lines for many years, ranked Colorado 32nd in "state and local tax burdens as a percentage of state income" in a report issued in October. By this measure, Colorado's tax burden of 9.1 percent is already higher than a number of other states in the Rocky Mountain region.
Just a few more statistics before your eyes glaze: The National Education Association, in a December 2012 report of state rankings, put Colorado 19th in per capita tax revenue from state and local government (although still $36 below the per capita national average) and 32nd when taxes are related to income.
So what do all of these statistics tell us?
First, it's clear from reading these and other reports that Colorado has relatively low state taxes and fairly
high local taxes, and that the combination usually puts the state somewhere toward the middle — or lower middle — on a per capita basis. Since Colorado remains a relatively high-income state, however, it can fall sharply under other formulas, such as taxes per $1,000 of personal income.
In last year's analysis, the Legislative Council explained that it used tax collections per $1,000 of income "because it provides a way to measure taxes paid across different geographic regions with varying costs of living and is more aligned with the ability of taxpayers to pay taxes than per capita tax collections."
The council's Ron Kirk, who prepared the document, told me recently that another reason the council prefers that measurement is that per capita rankings can skew the results for states that export their taxes through, say, gaming or severance taxes (Nevada, Alaska and Wyoming, for example.) But Kirk agrees that per capita comparisons are perfectly reasonable for most states, including Colorado.
I'd argue that per capita comparisons are actually more appropriate in terms of what most of us mean when we refer to a high- or low-tax state. A theoretical "ability of taxpayers to pay" doesn't enter the equation and sounds like the perspective of the tax collector. After all, most of us have the ability to pay more taxes without forgoing life's essentials. So?
Hickenlooper said the billion-dollar ballot measure will keep Colorado's tax rate competitive. Presumably he means the income tax rate, which would be hiked from a flat 4.63 percent to 5 percent for taxable income up to $75,000 and to 5.9 percent for income above that.
He's correct, so far as it goes: Even if the tax passed, I count 26 states on a Tax Foundation table, plus D.C. that would still have a higher top rate (although one of them, North Carolina, just overhauled its system and installed a single 5.8 percent rate).
But that conclusion should include a caveat: Colorado would move from a state with an attractive income tax to one in the broad middle pack (with no fewer than seven states above Colorado clocking in with top rates within 0.1 percent of 5.9 percent).
So neither side has a lock-down case based on taxes alone. Colorado's total tax burden is not ridiculously low, as is often alleged, but it won't be particularly high if November's measure wins, either.
Of course, there are many other arguments to deploy both for and against the tax hike. Supporters, for example, can still tout the extensive educational reforms that the new revenue would drive.
And opponents can still argue that the tax hike — 27 percent on income above $75,000 — represents another body blow to a middle class staggering under a decade of stagnant wages.
E-mail Vincent Carroll at email@example.com. Follow him on Twitter @vcarrollDPSource: www.denverpost.com