By Kathy White, deputy director

A few weeks ago, on my 10,000^th Zoom call of the last year, the facilitator opened with an icebreaker:

Describe the year 2020 with one word, and another one word for what you think it will be like in 2022.

At first, I balked, thinking, “Huh? The entirety of 2020 in a single word? The global pandemic, a catastrophic economic crash, the George Floyd racial justice protests, the steady COVID death toll, political turmoil, the personal struggles of friends and family, the individual worry and strain of trying to work at home and homeschool my kid at the same time – all that in a single word?” What word could be so rich as to capture all that?

After a little thought, I decided that the single word is revealed. The year 2020 revealed the fractures and fault lines—the deep inequities and vulnerabilities—in our culture and our economy. Every wave of global, national or individual shock, revealed the umbra, a truth we don’t want to acknowledge, a reality we don’t want to see that, nevertheless, persists at the center of our social lives.

The last shock came at the end of the year, when the Bureau of Labor Statistics released the monthly jobs report for December. The report showed the U.S. economy lost 140,000 jobs, all of which were jobs held by women.[1] All. Of. Them. It bears repeating: All of the jobs lost in the final month of 2020 were women’s jobs. Moreover, Black, Latina, and Asian women accounted for all the jobs lost by women in December.[2] That means every net job lost in the US in December was a job held by a woman of color.  

Overall, the pandemic economy has not been kind to women, particularly women of color. Since March 2020, women have lost 5.4 million net jobs, nearly 1 million more than men. Service industries that tend to have higher concentrations of women workers, including women of color, were the hardest hit by the virus. Pre-pandemic, those jobs often paid less and offered fewer benefits—like health care or paid leave—that might have helped women better weather this particular crisis. Frankly, the pre-pandemic economy wasn’t particularly kind to women either, especially women of color and immigrant women who were more likely to work in these industries.

Moreover, droves of women left the workforce altogether in 2020. The National Women’s Law Center analysis found that over the year, nearly 2.1 million women exited the labor force, including 317,000 Latinas and 564,000 Black women. Why the mass exodus? In addition to a lack of safe and adequate employment opportunities, many women left the labor force due to the second (or third or fourth) unpaid job they have: caring for family.

In a recent survey by the Institute for Women’s Policy Research, 50.4 percent of women reported that since March 2020 they had stopped working or reduced their hours because of caretaking demands. As schools and daycares closed due to the pandemic, women hustled to take up the domestic labor of caring for children and family that they had previously outsourced to ‘other women,’ including teachers and workers in those low-paying service industry jobs.[3] Women of all races reported leaving work, reducing hours, or both at some point during the pandemic to meet increased caregiving demands.

Thus, the revelation. The U.S. economy doesn’t work without women’s work. Our economy is always propped up and only chugging along because of the domestic labor of women. Prosperity depends on the essential work of caring for aging parents and children, tending the sick, shopping, cooking, cleaning, bathing, calendaring, carpooling—all the work that theorist Silvia Federici told The New York Times is the “work we do that is sustaining – keeping ourselves and others around us well, fed, safe, clean, cared for, thriving.”[4] The work historically, and primarily still today, shouldered by women.

Unfortunately, it’s also exploited work. Despite being the cornerstone of economic prosperity, U.S. domestic labor goes unpaid or undervalued. One study found that U.S. women and girls lost $1.5 trillion in unpaid domestic labor in 2019 and that number was nearly $11 trillion worldwide. Domestic workers—child care providers, in home health care, cleaners—struggled to support themselves and their families on low wages and subpar (or nonexistent) benefits before the pandemic and suffered huge losses since it began. The devaluation of domestic labor and disregard for the essential work that sustains families and human beings is gendered oppression that has no place in our post-pandemic economy.

Recognizing the need to reorient our future economy to one that reimagines work of all kinds, especially domestic work, economists and policymakers have called for a number of changes. Federici calls for a process called “commoning,” whereby individual actors in the economy remove areas of life from commodification and monetization.[5] Sounds nice, but outside the realm of comprehensive policymaking.

Researchers at the Brooking Institution, Center for American Progress and Economic Policy Institute have called for valuing what has historically been devalued by increasing wages, enacting and enforcing stronger labor and anti-discrimination laws, establishing a robust care infrastructure, requiring better benefits such as health care and paid leave as well as fair scheduling, boosting unemployment insurance, and, importantly, extending all of these policies to include immigrant workers who do much of our sustaining labor.

Vice President Kamala Harris echoed these calls to action and added housing assistance and immediate direct relief payments to her recommendations for ways to address these inequities in a recent commentary in The Washington Post.[6]  Direct relief payments are a bit like Federici’s notion of wages for housework; it’s providing a wage for what is now unpaid domestic labor. In the future, would a universal basic income, or something like it, serve as a more gender-neutral permanent valuing of the work that we know is necessary to sustain us all? The work must be done, but it need not be done solely by women. Solutions should encourage private and public valuation of the work, so that the talents of all – regardless of gender, gender identity and gender expression – find room to flourish in our economy. As Harris put it: “Our economy cannot fully recover unless women can fully participate.”

Which brings me around full circle to the single word that I hope that will describe 2022: Recovered. In its smallest sense, recovered means economic recovery, to recapture what has been lost: a return to pre-recession labor force participation, unemployment rates, stock market growth, and GDP. That’s not my meaning, though. I mean recovery in a more expansive, human sense—recovery as healing.

Mental health experts say there are four major dimensions that support human recovery and well-being: Health – making informed choices that support physical and emotional well-being; Home – having a stable and safe place to live; Purpose – focusing on meaningful daily activities and having the independence, income, and resources to participate in society; and finally, Community – relationships and social networks that provide support, friendship, love, and hope.[7] I read this and thought it’s exactly what our economy needs – treatment. To get at the root.

Policymakers should broaden their thought beyond traditional economic metrics to considerations of health, home, purpose, and community – to the needs of the human beings who are the economy. Only then can what has been revealed by this terrible year be healed and our economy truly recovered.

---

[1] Ewing-Nelson, Claire, All the Jobs Lost in December Were Women’s Jobs. National Women’s Law Center, January 2021. Accessed February 24, 2021. Available at:  https://nwlc.org/wp-content/uploads/2021/01/December-Jobs-Day.pdf.

[2] Boesch, Diana and Shilpa Phadke, When Women Lose All the Jobs: Essential Actions for a Gender-Equitable Recovery. Center for American Progress, February 1, 2021. Accessed February 24, 2021. Available at: https://www.americanprogress.org/issues/women/reports/2021/02/01/495209/women-lose-jobs-essential-actions-gender-equitable-recovery/.

[3] Kisner, Jordan, The Lockdown Showed How the Economy Exploits Women. She Already Knew. New York Times Magazine, February 17, 2021. Accessed February 24, 20201. Available at: https://www.nytimes.com/2021/02/17/magazine/waged-housework.html.

[4] Ibid.

[5] Ibid.

[6] Harris, Kamala Vice President, Opinion: The Exodus of Women from the Workforce is a National Emergency. Washington Post, February 12, 2021. Available at https://www.washingtonpost.com/opinions/kamala-harris-women-workforce-pandemic/2021/02/12/b8cd1cb6-6d6f-11eb-9f80-3d7646ce1bc0_story.html.

[7] https://www.samhsa.gov/find-help/recovery

By Caroline Nutter, tax policy analyst

Since 1980s, the rich have gotten richer. A lot richer. Recent research from economists at the University of California, Berkley show just how stark the reality is:

That economic inequality is only getting worse is obviously a national issue not unique to Colorado. However, the state’s constitutionally mandated flat tax rate, which causes us to rely heavily on naturally regressive sales taxes and fees, helps make it so Coloradans who earn low and middle incomes contribute a larger percentage of their income in state and local taxes than high-income Coloradans. A 2020 article in The Colorado Sun put it best: “In the Colorado tax code, it pays to be rich and it’s expensive to be poor.”

There are a number of policy solutions to this inequitable distribution of who pays the taxes that fund our public services, including implementing a graduated income tax and finding ways to offset the amount of taxes paid in sales taxes by people who earn low incomes.

Another policy solution that has grown in popularity since coming to the forefront over the past two years: wealth taxes. Wealth taxes have been proposed as a means to combat growing income inequality, including the racial inequities created by our current tax code (the people with the very highest incomes are disproportionately white, while people who earn low incomes are disproportionately Black and Brown compared to Colorado’s overall population).

Just this week, a bill to establish a federal “ultra-millionaire” tax was introduced by Sen. Elizabeth Warren of Massachusetts and Reps. Pramila Jayapal of Washington and Brendan Boyle of Pennsylvania.

All of these plans center around the concept of progressive taxation, or the idea that the more money someone makes, the higher their tax rate ought to be. The federal government began progressive taxation in earnest following the ratification of the 16th amendment to the US Constitution, which authorized a federal income tax. This effort ramped up during the Second World War, when President Franklin D. Roosevelt pushed for broadening the tax base and curtailing “entrenched greed” by taxing the wealthy and undistributed corporate profits.

In the 1960s, Congress again enacted progressive tax reform that eliminated some key tax expenditures for big business and oil industries. But by the 1980s, anti-tax sentiment was growing, and President Reagan ushered in a conservative revival of deregulation and tax cuts. Some of these policies included lowering corporate tax rates as well as the top income tax rates for high earners. The highest income tax rate would be reduced five more times between 1981 and 2021. In Washington, there was a bipartisan belief that the benefits given to the wealthiest in society would eventually “trickle down” to benefit everyone.

In reality, that hasn’t happened.

In a 2020 study conducted by the London School of Economics and King’s College, researchers looked at 18 countries over 50 years, comparing those that passed tax cuts for richer citizens and those that didn’t. The study found that, in each country, tax cuts for the wealthiest individuals dramatically increased their income but did nothing to significantly affect economic indicators like unemployment rates or Gross Domestic Product compared to countries that did not cut taxes for the wealthy.

Now, more than 100 years after it first gained popularity, progressive tax reform is seeing another revival, this time with an emphasis on taxing wealth. More and more legislators, fair tax advocates, and average citizens are beginning to criticize the preferential tax treatment given to certain types of income over others—primarily, the preference given to income from the sale of assets (also known as “capital income”) over wage income. At the federal level, wage income is taxed at rates between 10 and 37 percent, while the federal tax rate for income earned by the sale of long-term stocks and dividends ranges from 0 to 20 percent. In 2018, almost 70 percent of capital income went to the top 1 percent, and more than 50 percent went to the top 0.1 percent—that means more than half of the income held by the wealthiest U.S. households is taxed at lower rates than income earned through work.

Though Colorado can’t change preferential tax treatment of capital income at the federal level, we can take steps to create more fair and equitable ways to tax wealth at the state level:

State Taxes on Inherited Wealth

An estate or inheritance tax is a tax on property such as cash, real estate, stocks, bonds, and other assets that are transferred to a person’s heirs when they die. In 2001, the federal government levied an estate tax and had a federal credit that allowed states to “pick up” a share of federal estate tax revenues. In 2001, Congress cut both the federal estate tax as well as the federal credit to states; a policy change that today means just 1 in 1,000 estates are taxed at the federal level. As of 2019, 17 states and D.C. have their own inheritance taxes that generate about $4.5 billion in state revenues annually. Colorado does not currently have an estate tax. Colorado could either restore an estate tax to the pre-2001 federal limit or adopt a stand-alone estate tax that would be targeted at the wealthiest.

State Taxes on Property

Like Colorado’s income tax structure, our property taxes are also regressive. instead of taxing higher-value properties at a higher rate, property taxes are collected as a flat percentage of a property’s assessed value, regardless of the income of the owner or the value of the property. Colorado could inject progressivity into the property tax structure through a mansion tax. There are two primary ways to implement a mansion tax: through property taxes, or through real estate transfer taxes. Colorado could increase its real estate transfer tax, also known as the taxes or fees incurred at a time when the home is sold, for homes above a certain value, or it could add an additional tax for higher-value properties collected each year through the property tax structure. 39 states and D.C. have enacted mansion taxes.

State Taxes on Capital Gains

Colorado taxes its capital gains at the same rate as ordinary income: 4.55 percent. Colorado could raise its income tax rate on capital gains, in line with the federal income tax code, which taxes long-term capital gains at 0-20 percent depending on your income bracket. Colorado could also eliminate the “stepped-up basis” loophole that allows people to inherit assets such as stocks, bonds, or real estate without paying any taxes on the appreciation that occurred on those assets before they inherited them.

State Constitutional Barriers to Wealth Taxes

While these policy solutions would go a long way towards addressing Colorado’s inequality problems, enacting them will take more than just passing a bill at the legislature. While most Coloradans are familiar with Colorado’s requirements for voter approval of all tax increases, the state constitution does more than just mandate tax increases go to the ballot. Many of the policies outlined above would require placement of a constitutional amendment on the ballot, which would require either a two-thirds majority of the legislature to refer to voters, or tens of thousands of petition signatures from all 35 state Senate districts. This underscores the need for constitutional tax reform in Colorado.  

While the procedural barriers to these policies are large, there does appear to be strong support for them: a 2020 poll conducted by Reuters/Ipsos found strong bipartisan popularity for wealth taxes, and suggests such measures could pass at the ballot.

Colorado’s tax code, along with the federal code, are written to advantage the wealthy. It’s time for tax policy that makes sure the wealthiest, whose bank accounts and assets seem to only grow larger, pay their fair share and use that money to fund critical public services that make our nation and our state more prosperous for everyone, regardless of people’s skin color, where they were born, or how well-connected they are.

By Chris Stiffler, Senior Economist

Highlights

• Even though Colorado voters have approved a minimum wage in excess of the Federal wage, the current $15 per hour plan to gradually increase the federal minimum wage would increase wages for more than 550,000 Coloradans by 2025. 
• The proposed federal changes in the wage level restore the purchasing power of the minimum wage to levels not seen since the late 1960s.
• Workers who earn low incomes tend to spend—rather than save—a high percent of their income. This increase in wages can increase local economic activity.

Minimum Wage in Colorado

In 2006, Colorado voters added Article XVIII, section 15 to the state constitution. This amendment raised the minimum wage to $6.85 an hour from the previous level of $5.15, which was the federal minimum at the time, and required the state minimum wage to be adjusted annually for inflation.

In 2016, Colorado voters passed Amendment 70, which raised the minimum wage to $9.30 in 2017 from $8.31 in 2016 and required the state minimum wage increase by $0.90 a year until it reached $12.00 in 2020. 

Colorado’s minimum wage is moving back to its historic high. The chart below shows the state’s inflation-adjusted minimum wage since the early 1960s. The real value of the minimum wage hit its peak when the federal minimum wage went up in 1968 to $1.60— the equivalent of $14.47 in 2021 dollars. Colorado’s minimum wage of $12.32 in 2021 is still below the peak value, but Colorado’s minimum wage has gained back the real value it lost in the 1980s and 1990s.

The proposed $15 per hour wage will exceed Colorado’s minimum wage starting in 2024 when the Federal wage goes to $14 per hour. (see below)

Increasing the minimum wage to $15 an hour will affect non-Denver metro areas more than Denver.  The following table includes the percentage of jobs paying less than $15 an hour in various regions in 2019 (the most recent data available).

To get an idea about where $15 per hour compares to current available wage data: In 2019, over 27 percent of Colorado jobs (filled by 736,000 workers) paid less than $15, compared to 13.1% of Colorado jobs (filled by 350,000 workers) that paid less than $12 per hour. 

Statistically, that means if the minimum wage went from $12 per hour to $15 per hour in 2019, it would have more than double the number of workers getting a raise from a minimum wage increase, from 350,000 to 736,000.

By Roweena Naidoo and Elliot Goldbaum

While we work to put an end to the COVID-19 pandemic, we need to keep doing everything we can to support people who have been unemployed or underemployed, workers who earn low-wages, and families who are struggling to make ends meet. The last year has been a difficult one for workers in industries hit hardest by the pandemic, and for many of our friends and neighbors it’s nearly impossible for them to cover even essentials like food, rent, and utilities. Every day, people across Colorado are making difficult, heartbreaking decisions about which bills to pay, whether to buy food or medicine, and how to make it through the coming months. The Mile High United Way and the Colorado Fiscal Institute are both committed to fighting for those families and opening more opportunities for them to succeed by supporting effective policies.

That’s why we always spend time the last week of January to raise awareness about the Earned Income Tax Credit (EITC) on EITC Awareness Day. One of the best ways we can get more money into the pockets of those struggling workers and families in our community is by connecting them with the EITC and the Child Tax Credit (CTC). The EITC and CTC are both proven, effective ways to boost incomes of people regardless of their race, ethnicity, or ZIP code, and because low-income workers are disproportionately Black and Brown, we know these policies can make our tax code more equitable for people of color.

Importantly, because the effects of the pandemic will be with us long after the virus is eradicated, these tax credits are also positive, long-term policies that encourage work, boost incomes, and reduce poverty among family with children. In 2017, the average EITC for a Colorado family was $2,153, which is enough to pay for two months’ worth of food or child care for a family of four with two kids. For a struggling family, it makes a huge difference.

Though the EITC and CTC are both heralded as effective policies, we can make them better. Congress already made one small, effective change by allowing workers and families who claim the EITC to use either their 2019 or 2020 income when they file their taxes, but we can do more.

By expanding the EITC for childless adult workers, it would supplement the limited earnings of the front-line workers who prepare the food we all eat, provide in-home health services to older Coloradans, and care for Colorado’s kids, as well as those are keeping the economy moving by handling, packaging, and transporting goods. If these workers were no longer excluded from the EITC, it would make our tax code more fair and less slanted towards those with the greatest means. We can help make it easier for these workers to pay their bills today and build the financial stability they need to succeed in the future.

Another group of taxpayers who are currently excluded from the federal EITC and CTC are undocumented immigrants, many of whom file their taxes using an Individual Tax Identification Number (ITIN) instead of a social security number. Colorado immigrants pay billions in federal, state, and local taxes but are ineligible to receive these federal tax credits. Fortunately, state lawmakers made history last year by making Colorado the first state in the country to allow ITIN filers to claim the state EITC.  

In addition to the benefits for families who receive them, the EITC and CTC are effective policies because they can benefit all of us by stimulating the economy. When families who earn low incomes get an influx of cash like a bigger tax refund, they tend to spend it on things they need, and are more likely to spend it in their local economy. Look no further than the stimulus passed last year to see how getting more money into people’s pockets can keep a sluggish economy going.

Coloradans already receive approximately $730 million in federal EITC money every year, according to Get Ahead Colorado, a nonprofit that helps spread awareness about the credit. But we know that many thousands of Coloradans who are eligible to receive the EITC don’t claim the credit. We must do more, not only to increase eligibility, but to make sure everyone who’s eligible to do so gets this important financial lifeline.

Our state, our country, and the entire world is at a crossroads. While we wait for vaccines to be distributed and taken more widely, it’s critical to remember that our communities are all connected, and we all rely on one another. When families can’t afford the basics, it hurt all of us, but we know there are ways to help support them through public policy.

We urge Senator Bennet, Senator Hickenlooper, and Colorado’s entire Congressional delegation to let the rest of Congress know the EITC and CTC are important to the people of Colorado, and to our shared recovery. Not just on EITC Awareness Day, but every day.

Roweena Naidoo is the senior director for policy and impact investing for the Mile High United Way and Elliot Goldbaum is the director of strategic communications for the Colorado Fiscal Institute.

By Chris Stiffler, Senior Economist

#1: The K-Shaped “Recovery” Has Been Uneven

via GIPHY

It may seem hard to believe given the year we’ve just experienced, but in many economic measures, Colorado is back to pre-pandemic levels. Retail sales, state GDP, and personal income have all seen a sharp recovery, the type of which economists normally call “V-shaped.” But like most things this year, there’s nothing normal about the economy right now. Continued difficulty for workers and businesses in the food service and hospitality sectors mean that while some Coloradans have recovered from the disruption caused by the pandemic, others are struggling to meet even basic needs.

#2: (Some) Jobs Are Back

via GIPHY

Colorado has now regained 63 percent of jobs we lost at the start of the pandemic. And though total jobs in Colorado are still down 4 percent since February, the leisure and hospitality industry is still down 14 percent. High-wage employment is back above pre-pandemic levels while low-wage workers remain severely affected. For instance, low-wage jobs (those making less than $27,000/year) are still down 17.6 percent since January 2020 levels while jobs making more than $60,000/year are back to January levels. 

While there are positive signs for the overall economy, the economic effect the pandemic is having on the group of people who are bearing the brunt of the pain cannot be understated.

#3: Unprecedented General Fund Performance During a Downturn

via GIPHY

Just looking at Colorado’s elevated unemployment rate, we’d expect some dire news for the state’s General Fund revenue collections (nearly all of which comes from income, sales, use, and excise taxes).  Yet this isn’t the case. The General Fund is projected to end this budget year with a 23.7 percent reserve. Lawmakers will have about $3.75 billion more to save or spend for next year’s budget than what is spent this year. While that might sound like a lot, keep in mind legislators made about $1.5 billion in cuts to balance this year’s budget, and they’ll still need to account for population growth and inflation when they write the budget in 2021.

The strong General Fund revenue growth is related to the K-shaped recovery discussed above. Stronger-than-expected income tax collections, particularly from higher-wage earners, should help keep state funding from falling any further than it did in 2020.

Because the COVID recession is affecting people who work low-wage service the most, what we’re seeing in the economy and fiscal picture cries out for a policy response targeted at the workers and families whose livelihoods have been hurt the most.

#4: Federal Stimulus Helped, And More Would Help Too

via GIPHY

The latest personal income data really emphasizes the boost that the large federal stimulus had on overall spending. Figuring in money the state got directly from the federal government this year, we’re actually above pre-pandemic levels—compare that to the 2008-2009 recession, where it took a few years to get back to pre-recession levels. Thanks to large federal stimulus checks, boosted unemployment insurance payments, and forgivable business loans, it only took a few months for revenue collections to stabilize. 

Given this, it stands to reason that more federal stimulus would be another big help to the state as we wait for vaccine distribution.

#5: K-12 Enrollment Dip Brings a Wave Next Year

via GIPHY

The pupil enrollment count for the 2020-21 school year of 845,916 students is down 22,280 (2.6 percent) from the previous school year. A decline in student enrollment is unprecedented, particularly given the increase in Colorado’s overall population. The drop is driven largely by parents of new kindergarten students deciding to wait until after the pandemic to enroll their children in school.

This decline presents challenges for school districts because school funding depends on pupil count. With a decline in students, the school finance formula will give schools less funding. Though this year’s kindergarten cohort is down, next year’s class will be much larger. Those kids didn’t go away. And because schools hire next year’s teachers with this year’s budget, districts are worried about losing funding this year with the enrollment dip and then getting hit by a huge wave of backlogged kids once the pandemic has started to ebb.

The state should consider tweaking the school finance formula in anticipation of a bulge of students coming next year.

By Kathy White

This year, Colorado voters are being asked to increase taxes on tobacco and create a new tax on vaping products. The measure, called Prop EE, would raise revenue for preschool and prevent general state budget cuts.

Sounds like a simple equation, right? Tobacco + teen vaping = Bad. Preschool + kids = Good. Prop EE = problem solved! Well, not so fast.

It might seem simple, but in evaluating Prop EE, it becomes more complicated when looking at this measure as tax policy. That’s when Prop EE just doesn’t square.

We all know that tobacco and vaping result in poor health outcomes. Use of these kinds of products also drives up the cost of health care for everybody, but particularly the people who use them. We know that Colorado has the highest rate of teen vaping in the country, likely in part because there is no current tax on vaping products. And we all know that young people are particularly sensitive to price increases, so when the price goes up for tobacco and vaping products, use among teenagers goes down.

We also know that preschool is good for kids and believe that every kid – whether they’re Black, white, or Brown – deserves the opportunity to get a head start on kindergarten. When they do, all sorts of economic benefits follow them around for a lifetime.

The policy goals of Prop EE are not the problem (or at least not the sole problem). It’s the tax side of Prop EE that isn’t solved by the spending side of the EE equation. In other words, the combination of who pays the tax and how the revenue is spent makes Prop EE inequitable. Let me explain.

Tobacco taxes are what’s known as “corrective” taxes. They are meant to correct for internalities (e.g. the effect of nicotine on people’s health) or externalities (e.g. the cost of health care rising for non-smokers too), that aren’t captured by the price of the taxed item or activity on its own.

Think pollution, smoking, alcohol. These things have broader associated costs (cancer, drunk driving accidents, asthma) that aren’t captured in the price of tobacco, alcohol, or fossil fuels. Corrective taxes are both intended to alter behavior and to correct for the imbalance between the price of, say, a pack of cigarettes, and the true price paid.

Governments use corrective taxes all the time and have lots of choices in how to use the revenues captured from them. But how they choose to do so can affect whether or not the tax policy change fosters equity.

Tobacco taxes start out inequitable because they are regressive, meaning the “burden” of who pays the tax falls more heavily on people who earn low incomes because they are more likely to use tobacco products and to spend a higher share of their income on them. Adding to that is the longtime practice by tobacco companies of explicitly racist marketing to low-income Black and Brown neighborhoods. Today, Black, Brown, Indigenous and other people of color are more likely to use these products and be affected by this tax. Increasing the cost, as Prop EE does, just amplifies the inequity.

However, the inequity of the tax side of the equation can be mitigated by the spending side. For example, if the revenue collected from tobacco and vaping taxes is used to cover the increased social and health costs associated with tobacco use and vaping or otherwise benefits the same population, the policy strikes some balance. People who earn low incomes and people of color would then be more likely to pay but also more likely to reap the benefit.

If Prop EE were paired with spending on smoking cessation, health care for communities of color, or even free preschool for low-income kids of color first, there might be greater balance. But that is not the case.

Prop EE takes the revenues raised from mostly Black, Indigenous, Latinx, and other people of color who earn low incomes and puts it toward a general government service: preschool for all 4-year-olds. That service, while an important goal, is more likely to benefit higher-income people who are much more likely to be white.

This policy is not quite as extreme as raising the tobacco tax to finance a general income tax cut that would disproportionately benefit the richest Coloradans (looking at you, Prop 116), but you get the idea. It’s like asking low-income people of color to pay to send the kids of their higher income, white peers to preschool for free, widening a race equity gap that already exists.

Designing equitable tax policy demands attention to both sides of the equation – how the money is raised and how it is spent. We can enhance tax equity through the tax itself, the spending of the revenue, or the balancing of the two. For instance, a financial transaction tax or wealth tax could enhance the overall equity of our tax system through the revenue side alone, even if the spending was used for a general government service. The equity comes through the tax itself because it changes the distribution of who pays taxes to be fairer.

How the revenue is spent can also boost equity. For example, if the revenue from a financial transaction tax was used to fund opportunities for people who earn low incomes or to redress historic wrongs, it would reverse some of the barriers to wealth that Black, Indigenous, Latinx and other people of color face every day as the result of policy.

Equity can also be found in the balancing of the two sides of the equation, which is the best practice for tobacco taxes and other kinds of taxes with very extreme distributional impacts.

But Prop EE doesn’t do this. It starts with an inequitable tax, adds an inequitable spending plan, and results in a measure that violated our principle of equity and we couldn’t support. 

Moreover, Prop EE’s formula for linking a continuous need with a diminishing source of revenue doesn’t add up. Colorado will always have a steady stream of 4-year-olds who need preschool. One of Prop EE’s goals is to curb, and ideally eliminate, tobacco use and vaping. In that way, Prop EE couples a shrinking source of revenue to a growing expense and is therefore unsustainable over time. This violates our principle of sustainability.

Prop EE didn’t make it through CFI’s race equity framework for evaluating tax policy because it didn’t meet our principles of equity and sustainability. Of course, we believe in the public health goals of the measure, but this is an issue about intent versus effect. The intent of Prop EE is good and necessary, but the effect is racist and unsustainable.

Moreover, there are much more equitable ways to fund those goals, like a progressive income tax (like a Fair Tax, which we were all sad did not make the ballot this year). We also understand the urgency of the challenges our state faces, including the looming state budget cuts and the need for quality affordable preschool for all our kids.

Colorado’s unique constraints of TABOR make doing good tax policy difficult in the best of times and impossible in the worst of times. But if we keep approving incremental measures that make our tax code more upside-down and racist, all we have is a more upside-down, racist tax code. We must all center equity and anti-racism in our tax policy debates and start fighting together for those policies that are equitable at their root, in their product and for the whole. It’s not a radical idea but one long overdue.

By Pegah Jalali

The market helped change the climate. Now can it help save the planet?

We used to think of climate change as a problem for future generations, or something that only affects the Earth’s poles. Not anymore. Climate change is here, and we are experiencing it through extreme temperatures, large and frequent wildfires, air pollution, hurricanes, and droughts. There is a strong consensus among scientists that human-generated greenhouse gases are responsible for the climate changing due to rising global temperatures (Cook et al., 2016). We extract fossil fuels from under the ground, burn them and those gasses become trapped in the atmosphere adding to the thermal energy in the system. This added energy does not leave the atmosphere, and therefore has to manifest itself in one way or the other. If we do not cut our emissions drastically, we will keep adding to the energy trapped in the Earth’s atmosphere, and the results will likely be catastrophic.

In order to soften the blow of climate change and reduce emissions, we will need to change our economic policies to address the problem.

Free market economics is based on the idea that while individuals act in their own self-interests, the market as a whole allocates resources efficiently. The “invisible hand”of the market, or so the theory goes, delivers the best possible social and economic outcomes. There are, however, situations where the market is unable to deliver the most efficient social outcome, which is known as market failure. 

One such market failure occurs when externalities are present. Externalities arise when the actions of one person make another person worse or better off, but the first person neither bears the costs nor receives the benefits of doing so. Greenhouse gas emissions are an example of negative externalities: a factory that emits harmful gases to the atmosphere imposes damages to the whole society; however, this social cost is not reflected in the private costs that the factory owner pays in purchasing materials and labor. Thus, the factory’s cost of greenhouse gas emissions is lower than what it should be given the societal cost of climate change, and the factory has no inherent self-interest in reducing emissions. In this case, government intervention is necessary to fix this market failure.

Economists agree that putting a price on carbon is the most cost-effective way of reducing the greenhouse gas emissions created by burning fossil fuels (OECD, 2013). By instituting a price, governments can try to minimize the gap between the actual costs, or what the free market says it should cost, and the true cost of those emissions to society (social cost). There are two general market approaches for regulating carbon emissions: quantity instruments (cap-and-trade), and price instruments (taxes and fees).

Cap-and-trade

Under a cap-and-trade policy, the government issues emissions allowances (or permits) to facilities. Polluters have to buy allowances equal to the amount that they pollute. Allowances can be traded, and the price of carbon is determined by the market. If the cost of decreasing one ton of pollution is higher than the allowance price, the facility purchases allowances from a polluter with a lower cost of reducing emissions. Cap-and-trade has sometimes been seen as a market-friendly approach because it allows the market to dictate the price of carbon, not the government.

The European Union Emissions Trading System (ETS) has been in effect since 2005 and now prices carbon at about $25 per ton. California is an example of a US state with a cap-and-trade system and their price is currently around $17 per ton. There are important considerations to keep in mind when designing a cap-and-trade program:

• Emissions cap:Many governments choose to distribute all or a majority of the allowances for free to avoid political opposition in the beginning years of the program. In this case, having an accurate estimate of required allowances is critical. The European Union did not have accurate emissions data in the beginning of the ETS program, so allowances were over-supplied and therefore the prices were much lower than what would be needed to meet carbon-reduction goals.

• Initial distribution of allowances: Initial allocation is very important if the allowances are distributed free of charge. The firms that receive more allowances than they need may bank allowances and not enter the market for a long time. A thin market increases uncertainty about allowance price and the perceived fairness of the program. A larger market makes it more difficult for price manipulation to happen and a larger quantity of allowances for sale with more participants increases the quality of the price signal (Burtraw and McCormack, 2017). For these reasons, transparency about the allocation process is very important.
• Auctions: In order to avoid the pitfalls of free allocation (and raise revenue) governments might sell some or all allowances in an auction. Auctions are a fast and efficient way of discovering carbon price; however, they might impose high costs on consumers like utility customers, business owners, and even governments themselves if other regulations are not in place to protect them.
• Banking and offsets: To provide more flexibility and protect industries from overly high costs of reducing carbon emissions, cap-and-trade programs allow for the banking of allowances for future use and purchase of offsets (e.g. planting trees). Since offsets usually do not provide local benefits and do not incentivize emission cuts, cap-and-trade programs only devote a small share of emission reductions to offsets.

Carbon taxes

A carbon tax puts a tax on fossil fuels in proportion to their carbon content and therefore their societal cost. A tax increases the costs of burning fossil fuels, thereby decreasing how much carbon is absorbed by the atmosphere. A carbon tax internalizes the externality by assigning the appropriate cost at the point of purchase and removes the inefficiencies of the market. By taxing carbon, the price is fixed, and the quantity of emissions will be determined in the market.

Economists recommend setting a tax based on the social cost of carbon—the dollar value of long-term damages done by a ton of carbon dioxide emission in a given year (EPA, 2016). The social cost of carbon is estimated to be about $50 per ton in 2020 (GAO, 2020). Revenues from a carbon tax can be returned to individuals in the form of a lump-sum rebate or a decrease in other taxes (such as income or sales tax) or invested in climate change mitigation programs. British Columbia’s revenue-neutral carbon tax reduces other taxes to decrease the burden on workers and employers. On April 1, 2019, BC’s carbon tax rate rose from $35 to $40 per ton of CO₂.

Which one is best?

A carbon tax is quicker to implement and easier from an administrative point of view. Its implementation requires no extra bureaucracy and no lengthy negotiations like what take place to determine the initial allowances in a cap-and-trade system. It is also more transparent, minimizes government involvement and avoids creation of new markets that raise imperfections and possibility of manipulation. However, under a cap-and-trade system, borrowing, banking and extended compliance periods allow firms the flexibility to make compliance planning decisions on a multi-year basis. Moreover, cap-and-trade is the only instrument that guarantees the desired emission reductions. It is also seen as more attractive politically.

Carbon pollution and carbon prices both disproportionately affect people who earn low incomes. Who is affected by cap-and-trade and tax policies, and how much they’re impacted by them, largely depends on their design and the conditions related to their implementation. A successful carbon pricing mechanism offsets all or parts of these negative impacts on people who are most affected, such as people of color and low-income communities.

Pricing carbon makes polluters pay the cost of their emissions and holds them accountable for the costs they impose on society. By not addressing this issue head-on, we are paying the price of pollution in the form of lost economic opportunities like losing the outdoor recreation, tourism, and ski industries. We also share in the costs of mitigating natural disasters created by climate change like floods and wildfires. Pollution and smoke from wildfires are resulting in increases in respiratory and cardiovascular diseases, and most importantly, people are losing their lives and livelihoods. If we do not price carbon, our society will continue to bear these costs, and we will lose more than just money. We will lose our very way of life.

That’s something you can’t put a price on.

References:

Burtraw, Dallas, and Kristen McCormack. “Consignment auctions of free emissions allowances.” Energy Policy 107 (2017): 337-344.

EPA, Technical Support Document: ­Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis ­Under Executive Order 12866, August 2016. https://19january2017snapshot.epa.gov/climatechange/social-cost-carbon_.html

J. Cook, et al, Consensus on consensus: a synthesis of consensus estimates on human-caused global warming, Environmental Research Letters Vol. 11 No. 4, (13 April 2016); DOI:10.1088/1748-9326/11/4/048002

By Chris Stiffler

1. The economy fell off a cliff, but it would have been much worse without federal stimulus

As we’re all acutely aware, the economy has been in rough shape due to efforts to curb the spread of the coronavirus. 2020 saw the worst quarterly drop in Gross Domestic Product (GDP) on record. A 31.7% drop in the second quarter was four times greater than the Great Recession and largely driven by a collapse of consumer spending (which typically drives two-thirds of the economy). Stimulus checks and boosted unemployment insurance payments kept consumer spending from falling even more drastically than it would have otherwise.  With an additional round of stimulus is still uncertain right now as Congress and the White House struggle to come up with a deal, a lack of additional stimulus will mean a much weaker 2021. 

2. The budget picture is getting rosier, but ballot measures could change that

The FY2019-20 budget finished up $900 million than where we thought it would in June. Due to better-than-expected economic activity in the last several months, as well as 2019 income tax collections that were stronger than originally anticipated, the current budget (FY2020-21) has $540 million more than we thought it would at the last revenue forecast. Add those together and we have about $1.4 billion more than we thought we would back in June. This is welcome news since the 2020-21 budget was filled with historic cuts to schools and colleges after an 11.6 percent drop in General Fund revenue due to the COVID recession, and next year won’t be any easier.

Despite the brighter budget outlook, schools could take another big blow in funding after the November election depending on the outcome of two ballot measures. Proposition 116, which will lower income taxes (with most of the benefits going to the wealthy) could reduce the General Fund by $158 million and force more cuts to schools and other important services. Voters will also be considering Amendment B, which will repeal the property-tax-limiting Gallagher Amendment. If voters don’t approve it, the residential assessment rate will drop 18 percent, and schools will have $500 million less.  

3. Colorado has regained 39% of the jobs lost since the pandemic began

Colorado lost hundreds of thousands of jobs in March and April during the stay-at-home order, and though we’ve regained nearly 40 percent of them, we still have a long way to go before we get back to where we were in February and early March. To put that another way, this recession has still negated a full four years’ worth of job growth. Part of the reason it will be tough to get back to full employment is because state and local government employers are still cutting jobs to help balance their budgets.  Colorado’s unemployment rate dropped to 7.4 percent in July from 10.6 percent in June (the jobless rate never got above 9 percent during the Great Recession). It’s encouraging to see more jobs being created, but we’re still at a level that’s about three times the 2.5% rate we enjoyed prior to the pandemic.

4. Continued high unemployment is creating a huge strain on the Unemployment Insurance Trust Fund

Colorado as seen unprecedented increase in unemployment claims during the COVID-19 recession. In the year before the pandemic, Colorado paid out paid $365.5 million in unemployment benefits. In FY2019-20, the trust fund paid out $1.27 billion and in FY2020-21 benefits paid are expected to peak at $2.62 billion. The drop in fund balance in the UI Fund triggered a move to the second-highest premium rate schedule starting January 2021. The fund is currently insolvent and will remain there for several years. While that sounds bad, the state exhausted the fund during the Great Recession as well, and will be borrowing from the federal government to ensure continued payment of benefits.

5. A ‘square root’-shaped recovery is emerging

The economy fell farther and faster than state economists thought when they released their June forecast, but the initial recovery was also stronger than they originally anticipated according to economic data from May and June. While that was welcome good news, economic activity did appear to be slowing down in August. However, because the initial COVID recession was so pronounced, on a per-capita inflation-adjusted basis, General Fund revenue isn’t projected to get back to pre-pandemic levels before 2023.

By Chris Stiffler and Elliot Goldbaum

The real cost of an income tax cut

This November, Colorado voters will consider whether or not to lower Colorado’s income tax from 4.63% to 4.55%. Before you get your ballot, it’s important to understand who will benefit the most from Proposition 116, and why a tax cut will result in big cuts to critical community services.

First, a little background on Colorado income taxes.

Colorado is constitutionally required under TABOR to tax income at a single rate – meaning a family earning the state’s median annual income of $70,000 pays the same rate as someone earning an annual income of $500,000 (the threshold for the wealthiest 1%).

Because of this requirement, any statutory increase or reduction in the income tax rate can’t be targeted to benefit or protect low- and middle-income families.

In fact, since Colorado’s tax code is tied to federal deductions and exemptions, and because people who earn low and middle incomes pay more of their income in sales and other types of taxes, any income tax cut puts an outsized share of the money into the pockets of those with the most.

Meanwhile, even though the coronavirus pandemic has hit them especially hard, Proposition 116 won’t do much for low- and middle-income workers and their families.

What it will hit hard is funding for our state’s public services. If voters pass Proposition 116, it will have immediate effects on many priorities in the state budget. The measure will reduce state revenue by $158 million in the first year alone.

Because income taxes are the largest revenue source for the General Fund – the part of the state budget responsible for funding K-12 schools, Medicaid, state colleges and universities, courts, prisons, and human services like child welfare and behavioral health – any reduction in the income tax rate directly affects those services.

Here’s a practical example of what happened to education funding when last time we cut taxes: In the late 1990s, Colorado’s income tax rate was 5.0%. When lawmakers cut the income tax rate in 1999 and 2000 to the final rate of 4.63%, it directly affected funding for public services. Colorado’s investments in K-12 education, higher education, and other public services have fallen behind when taking inflation and population growth into account.

The wealthiest see the greatest reduction in taxes

Proposition 116 won’t just result in cuts to important services, it will flow disproportionately to the richest Coloradans. As you can see in the chart below, Proposition 116 will effectively take millions of dollars for education and health care and put more than two-thirds of it into the pockets of those who make more than $100,000 a year.

Contrary to claims from proponents of Proposition 116, it would provide little “relief” to Coloradans hit hardest by the coronavirus pandemic. Our analysis shows the richest 1% would see the amount they pay in taxes fall by a greater amount than the dollar amount of the reduction for the bottom 70 percent of taxpayers.

One in four Coloradans won’t pay any less in taxes

An income tax cut also leaves out many Coloradans altogether. Because a portion of Colorado taxpayers have higher deductions than taxable income (and thus zero income tax liability), an income tax rate reduction has no effect on 25 percent of Colorado taxpayers. Of those 672,000 taxpayers with no income tax liability, more than half have incomes below $25,000, and 80 percent of them make less than $46,000.

And how much would those who do stand to pay less in taxes get to keep? As you can see in the chart below, not much. For someone with an adjusted gross income (AGI) of $60,000, Proposition 116 would be enough for a tank of gas. For someone with an AGI of $25,000, it would buy you a vanilla latte. A millionaire will get $725.

For someone who makes $5,000,000, on the other hand, that’s a nice chunk of change.

The wealthy already pay a smaller percentage of their income in taxes

Regardless of whether voters approve Proposition 116, Colorado’s tax code is unfair and upside down. That’s because sales and property taxes take up a bigger share of income for people who work low- and middle-wage jobs compared to wealthier people.

The sales tax is the biggest culprit. A household making $32,000 a year pays 5.0% of their income in sales tax, whereas a millionaire pays sales taxes totaling less than 1% of their income. Coloradans earning low incomes also pay a higher rate of their income in property taxes compared to wealthier households. Overall, people in households earning $32,000 pay 9 percent of their annual income in state and local taxes. Compare that to households earning $400,000 a year, who pay around 6.5% percent of their incomes in state and local taxes.

If that wasn’t enough, because high-wage earners are disproportionately white and workers who are Black, Indigenous, and people of color disproportionately work low- and middle-wage jobs, income tax cuts like Proposition 116 worsen our already racially inequitable tax code.

During a time when hundreds of thousands of Coloradans are unemployed, seeing their hours reduced, or dropping out of the workforce altogether to care for their families, many of us relying on the public services that income taxes fund more than ever.

Proposition 116 worsens our already unfair tax code, takes funding away from critical services, and gives an outsized share of the money in reduced taxes to the wealthiest 1% of Coloradans.

Voters should carefully consider the costs of this irresponsible tax cut before they turn in their ballots.

By Pegah Jalali

Coloradans are no strangers to wildfires, but this year’s fire season has come with quickness and ferocity not seen in years. A recent analysis of state wildfire history found more acreage burned in the past three weeks than in a 20-year period between 1960 and 1980. With forecasts calling for more hot, dry air in the next few weeks, it’s clear that firefighters from across the state and the country have their work cut out for them.

The drought creating the conditions for such large and destructive fires has been linked directly to climate change. That makes regulations designed to curb climate-warming emissions passed by Colorado lawmakers last year even more urgent and important.

Despite the urgent need felt by communities across Colorado to transition to a low-carbon economy in an equitable way, retrain fossil fuel workers, establish tighter regulations on pollution, and provide incentives for renewable energy investments, Colorado’s constitutional fiscal policy constraints are making incentives for such a transition much more difficult.

While many Colorado voters list climate change as a top issue, many are unaware bad policies baked into the state constitution are creating barriers to Colorado’s goals on climate change. More needs to be done to educate voters on the role tax and budget policies play in climate solutions, and the ways Colorado’s unique constitutional constraints like TABOR make it much more difficult to achieve what strong majorities of Coloradans agree is an important priority.

Last week, state officials from the Colorado Energy Office, the Colorado Department of Transportation (CDOT) and the Colorado Department of Public Health and Environment (CDPHE) took part in a virtual public comment session on the Colorado Greenhouse Gas Pollution Roadmap. More than 200 members of the public participated.

The “Roadmap” is a list of actions that will achieve emission-reduction targets set by the legislature in HB19-1261. That bill established the goal for Colorado to get 100% of our energy from renewable sources by 2040. These goals are projected to decrease emissions to 50% below 2005 levels by 2030 and 90% below 2005 levels by 2050. Some of the most important carbon reduction plans in the Roadmap include energy efficiency and conservation (e.g., building codes, per capita reductions on the number of miles traveled by vehicles); electrification of buildings, transportation, and industry; low-carbon electricity generation (biofuels, solar, and wind energy); and non-energy emissions reductions (non-combustion).

The listening session highlighted the ways climate change affects Colorado in addition to wildfires, including reduced snowpack and warmer streams, drier soil and thirsty crops, poorer air quality, and more severe and frequent floods. Colorado officials are also incorporating a climate equity framework into their work, acknowledging the adverse effects of climate change disproportionately affect people of color, indigenous people, rural communities, and low-income residents. This comes after CDPHE announced this month they are officially declaring racism a public health crisis.

During the public comments section, community members discussed many of the ways climate change is affecting their well-being. The audience held shared concerns on the ways air pollution and excessive heat affects our health (e.g. respiratory and cardiovascular diseases, low birth weight), the economic consequences on industries such as recreation and agriculture, and mental health problems such as anxiety and depression. Many community members reiterated the ways climate change disproportionately affects families who earn low incomes and communities of color.

As firefighters continue to work around the clock to put out the fires currently burning in our state, health officials are still working to stop the spread of COVID-19. Though the pandemic briefly paused some of the harmful pollution driving climate change, it’s not going to be nearly enough to get Colorado to where we need to be.

Drastic action will be needed to get our state, our country, and our planet back on track. We can’t afford to let bad fiscal policy prevent us from doing what’s needed to protect our climate, our communities, and our way of life.

Elliot Goldbaum contributed to this blog.