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We envision a Colorado where responsible, people-centered economic and fiscal policies advance equity and widespread prosperity. |
Professor john a. powell will be the 2017 Fiscal Forum keynote speaker.
By Samantha Curran
CFI Policy Analyst
No one who’s fought for our country should live in poverty. But right now, veterans and active duty members of the military without children are among the only workers who are shut out of the federal Earned Income Tax Credit, a shameful exclusion that means many Americans who’ve risked their lives for our country are driven deeper into poverty.
Under current law, low-wage workers not raising children in the home and adults under the age of 25 are ineligible to receive the EITC. President Obama and House Speaker Paul Ryan have proposed nearly identical plans to address this issue. Their proposal would expand the EITC for workers not raising children and lower the eligibility age to 21.
The EITC is one of the most effective and sensible tools to help struggling working Americans escape poverty. By offsetting income taxes for low-wage workers, this credit encourages and rewards hard work. In particular, it has proven to be a successful anti-poverty measure for veterans, boosting economic security for about 2 million veteran and military households, including 39,000 veteran and military households in the state of Colorado. However, the current EITC structure leaves out thousands of hard working veterans and military service members who are struggling to make ends meet.
Last year, about 1.3 million veterans lived in poverty, and 50,000 veterans were homeless, according to the U.S. Census Bureau. After the tremendous sacrifices and hard work these men and women put into serving our country, they should not have to worry about being able to put food on the table or be concerned about where they are going to sleep at night. President Obama and House Speaker Paul Ryan’s bipartisan plan to strengthen the EITC would help address this issue.
Under this plan, some 630,000 additional veterans and active duty military workers, including 12,000 veterans and military workers in Colorado, would see some much needed tax-relief, according to the Center on Budget and Policy Priorities.
Today as we attend our local Veterans’ Day parades and fly our American flags in honor of those who have served, we should not only celebrate, but support our active duty and military veterans who put their lives on the line for our country. Policy makers can alleviate the economic challenges many veterans face after ending a tour of duty and coming home by expanding the EITC to workers not raising children in the home and to younger adults.
We cannot simply support our troops with songs and salutes or parades and picnics. We must do right by them each and every day by extending fair tax policy to every single one who has served us.
By Chris Stiffler
CFI Economist
The governor submitted his recommendations on Tuesday for the 2017-18 budget. Here are five important things to understand about his spending recommendations and the budget realities he must grapple with.
To cover the costs of inflation, population, caseload growth and some other obligations in next year’s state budget, the state needs $926 million, but new revenue available for next year is only $426 million. That leaves a $500 million gap. To deal with that shortfall, the governor suggests reducing money available for roads (reducing 228 transfers by $30 million), making more cuts to schools and reducing a Medicaid funding mechanism known as the Hospital Provider Fee to avoid issuing TABOR rebates.
One of the demands for revenue in FY 2017-18 is taxpayer refunds required by Art X Section 20 of our constitution. Collections are projected to exceed the FY 2017-18 TABOR revenue limit requiring $195 million in rebates. The governor suggests reducing the amount of money collected through the Hospital Provider Fee by $195 million as a means of eliminating the need for rebates. While this move helps close the general fund shortfall, it does so by costing the state federal matching dollars that flow into Colorado to help pay for health care for low-income, disabled and elderly populations.
The governor’s budget recommends an increase in the “Negative Factor” — the amount by which funding for schools has fallen below inflation since 2009. Our schools are currently getting $831 million below inflation increases since 2009. The governor suggests adding an additional $45 million to the current shortfall increasing the Negative Factor to $876 million for the FY 2017-18 school year. If per-student support for school had kept pace with inflation since 2009, schools would be getting $1,007 more per student.
The proposed budget recommends new uses for marijuana tax revenue, including programs for affordable housing, behavioral health needs, homelessness and expanding the state’s marijuana-impaired driving public awareness campaign. The governor also recommends tapping into the school capital construction fund known as “BEST,” an account into which $40 million of marijuana excise tax goes every year along with money from other sources, to help pay for school operating costs. Specifically, the governor proposes to use $15 million from the BEST fund to pay operating expenses for K-12 education.
Because the amount the state is expected to collect in taxes has fallen over the last several months, the current budget (FY 16-17) was short. To make up the difference, legislators tapped into the general fund reserve, dropping the 2016-17 reserve amount from 6.5 percent of general fund spending to a 5.5 percent. The governor’s proposal for FY 17-18 would restore the reserve to 6.5 percent. This move would put the state in a better position to weather a downturn but contributes to reductions for schools and roads. Of course, the budget that ultimately gets adopted could mitigate the cuts to schools and roads by tapping into the reserve again. It’s alarming that our economy is relatively strong but our revenue isn’t keeping pace with demand for services.
By Samantha Curran
CFI Communications Associate
When it comes to paying taxes, U.S.-based multinational corporations have been playing by a different set of rules than small, domestic businesses and individuals.
For years, some of the biggest and most successful multinational corporations such as Apple and Walmart have been reporting their U.S. profits as profits earned offshore in tax haven countries with no or minimal tax rates to avoid paying U.S. taxes on their income. While this accounting maneuver saves these companies billions of dollars, it comes at a cost to other U.S. citizens. Corporate tax avoidance is not inevitable, however. Congress has the ability to level the playing field by getting rid of incentives to shift profits offshore, increasing transparency for financial reports and closing the loopholes in the current tax code.
The U.S. tax code states that companies can defer paying U.S. taxes on profits that were made outside of the U.S. until they repatriate the money, or in other words, bring the money back into the U.S. This has led to at least 367 companies of the Fortune 500 to operate one or more subsidiaries in tax havens to avoid paying an estimated $100 billion in U.S. federal taxes every year according to a report called “Offshore Shell Games.” With a few accounting maneuvers, companies can disguise their U.S. profits as profits made abroad from one or more of their subsidiaries located in tax havens. By “transferring” their profits to tax havens like the Netherlands, Ireland and Bermuda, the corporation avoids having to pay the corporate U.S. tax of 35 percent and instead pays on average a tax rate of 6.2 percent to other countries.
Generating billions of dollars in savings for these multinational corporations by recording profits offshore comes at a cost to other tax paying Americans. The absence of their federal tax dollars results in other taxpayers having to balance out the difference, cuts in government programs and even increased federal debt.
It is important to remember that the majority of these companies’ business transactions take place within the U.S., and the companies benefit from the use of public goods and services. For example, they use U.S. roads to transfer products, and they benefit from strong private property rights that are enforced through the U.S. court system. The courts system also settles disputes between companies, and the regulatory bodies that are set up to oversee the financial system ensures investors keep investing. The U.S. military safeguards shipping and American interests around the world. Companies benefit from clean water and air protections, from the regulatory structures that ensure their raw materials are safe, from the infrastructure that maintains an electrical grid, water systems and communications.
The list is endless.
As Americans, we all help pitch in in order to receive these goods and services that we all benefit from and use every day. However, when these companies avoid paying their share of taxes, they are leaving it up to small businesses and individuals to fit the bill.
The inequity that comes from corporate tax avoidance is not inevitable. As suggested in “Offshore Shell Games,” policymakers can and should reform the tax code to stop incentivizing offshore recording of profits, increase transparency and close the current loopholes.
This can be accomplished by no longer allowing companies to defer paying U.S. taxes on foreign profits and instead, require companies to pay taxes on their foreign income at the same rate and time they pay their U.S. taxes.
The Financial Accounting Standards Board should require that companies fully disclose country-by-country information on their profits, income taxes paid, number of employees and assets in their annual 10-K filings to the agency, which would increase transparency and make it more difficult to disguise information in their books. Lastly, methods to close the current loopholes include treating companies that are managed and that conduct the majority of their business within the United States as U.S. companies, requiring consistent claims on what the company considers a subsidiary and a partner and stopping companies from being able to shift intellectual property (patents, trademarks, licenses) to tax havens. By following these methods, it is possible to instate overall fairness into the tax system and prevent corporations from avoiding paying U.S. taxes.
Corporate tax avoidance is grossly unfair, but, easily preventable. The current tax code incentivizes multinational corporations to classify their domestic income as foreign income to reduce the rate at which they pay taxes. There is no such thing as a free lunch however. By shipping profits offshore, corporations are dodging an estimated $100 billion in federal taxes annually, forcing other taxpayers to make up the difference. Small businesses and individuals should not have to carry the load for these corporate freeloaders.
Congress should act to reform the tax code to stop incentivizing this practice, make companies disclose full and honest financial reports, and close loopholes altogether in order to make big corporations pay their fair share.
By Chris Stiffler
CFI Economist
Both the unemployment rate and the underemployment rate are back to pre-recession levels. The Colorado economy is expected to be driven largely by household spending in the next few years, however a slight pullback in business investment and lower exports from a weak global economy leading forecasts to have a subdued outlook for economic growth. Also, weak agriculture prices are another contributor to tepid sales tax collections. The risk of a recession is now higher than at early points since the last recession ended.
The new growth in general fund revenue projected for FY 17-18 isn’t enough to cover the Senate Bill 228 transfers obligation to capital construction and transportation, TABOR rebates and refilling the general fund reserve that was cut in the previous two budgets. This means tough decisions for budget makers this year — not great news for schools.
A projected rebound for Hospital Provider Fee revenue next year is a large contributor to why the state will have to issue TABOR rebates to taxpayers in FY 2017-18 despite having to make cuts in other parts of the budget. In FY 2016-17, Hospital Provider Fee revenue was $656.8 million and in FY 2017-18 it is anticipated to jump to $865.3 million. Remember that both taxes and cash funds count toward the state’s cap on revenue collections, but rebates must be paid out of the General Fund. This makes the decision to not make the Hospital Provider Fee an “enterprise” under TABOR (and therefore not counted toward the TABOR revenue cap) much more important. Taxpayers can expect a $21 refund in 2018 while budget writers will be forced to cut roads, schools and colleges.
The state budget’s savings account (General Fund Reserve) has been tapped into the last two years to avoid making cuts to colleges and schools. This shows the importance of having a cushion to weather unexpected events like the most recent drop in severance tax collections or the Colorado Supreme Court ruling early this year that said the state owes money to oil and gas companies. With the increasing risks of an economic downturn coming and the state savings account running especially low, budget-writers are facing cuts next year.
The appreciation in the cheapest third of houses and condominiums has outpaced appreciation in middle and upper tier properties. A lot of the new income from a tight labor market is going to rent and housing instead of retail purchases which is contributing to the reduced expectations for sales and use tax revenue over the next two years.
By Samantha Curran
CFI Communications Associate
Colorado’s median household income is climbing to reach pre-recession levels. However, we have not yet reached the pre-recession peak according to the new U.S. Census poverty and income data. Although the just-released official poverty rate and the uninsured rate are down — and median household income is up — disparities in income and poverty by race and gender still persist heavily in Colorado.
Poverty and Median Household Income by Race:
The official poverty rate for Colorado has declined from 12 percent in 2014 to 11.5 percent in 2015, however, communities of color still experience poverty levels almost twice as high as their white counterparts.
Overall, median household income has increased over the last year from $61,303 in 2014 to $63,909 in 2015. Colorado’s median household income in 2007 was $65,586 in 2015 inflation-adjusted dollars.
Figure 2: Median Household Income Still Below Recession Levels
(In 2015 inflation-adjusted dollars)
Despite this upward trend, disparities in income among race still persist. Hispanic/Latino and black/African-American Coloradans are earning almost $20,000 less than white Coloradans, while American Indian Coloradans are earning more than $29,000 less than white Coloradans.
Figure 3: Median Household Income by Race (2015)
Poverty and Median Household Income by Gender
Although median household income has increased, the gender wage gap remains unchanged. Women who work full time continue to earn just under 20 cents less compared to their male counterparts working full time. Median earnings for women working full time in 2015 was $41,747 while median earnings for men working full time in 2015 was $51,848.
In addition, women are more likely to live in poverty than men. In 2015, 12.3 percent of women and 10.6 percent of men in Colorado lived below the poverty line.
Poverty by Families
In 2015, 7.6 percent of families lived below the poverty line. This percentage increased for families with children under the age of 18 and was even greater for families with children under the age of 5. This past year, 12 percent of families with children under the age of 18 and 12.5 percent of families with children under the age of 5 lived in poverty. For families with both children under the age of 5 and children between the ages of 5 and 17, 18 percent lived in poverty.
The poverty rate increased for female-headed households. These households were 6.25 times more likely to live in poverty than dual-headed households. Forty-one-point-six percent of single mothers with children under the age of 5 lived in poverty, and this number jumped to 57.3 percent when a household included both a child under the age of 5 and a school-aged child. Once children reach school age for these single mothers, poverty rates drop significantly from 57.6 percent to 26.5 percent.
Figure 4: Percent of Female-Headed Households Living in Poverty
(At left, single mothers with children under 5. Right, single mothers with children between 5 and 17.)
Deep Poverty
Those living below 50 percent of the federal poverty threshold are considered to live in deep poverty. In other words, a family of four with an annual income of less than $12,129 is considered to live in deep poverty.
In 2015, 5.1 percent of Coloradans lived in deep poverty. This is less than the 2014 level of 5.5 percent. Although the overall level has dropped, deep poverty rates by race, gender and age are still disproportionately high. Black/African American, American Indian and Hispanic Coloradans are about two times more likely to live in deep poverty when compared to white Coloradans. Females experience a higher rate of deep poverty than males by 0.9 percent. In 2015, 5.6 percent of females and 4.7 percent of males in Colorado lived in deep poverty. Out of all age groups, children have the highest deep poverty rate, as 6.2 percent of children (under the age of 18) lived in deep poverty in 2015.
Conclusion
Despite small improvements in the overall poverty rate and median household income, the new data tells the same story as in years past; minority groups continue to see the highest rates of poverty and earn the lowest median incomes.
Colorado can improve upon these racial and gender disparities by making policy decisions that promote economic prosperity for all Coloradans. Governmental assistant programs like the Earned Income Tax Credit, the Child Tax Credit and Medicaid are examples of programs that have found success in keeping families from falling below the poverty line. As this year’s data shows, Colorado still has a long way to go to achieve equity and the implementation of new anti-poverty programs can help ensure that not just poverty and income overall improve, but that they improve across the board.
This November, Coloradans will vote on whether to raise the state’s minimum wage by more than just inflation for the first time in a decade.
The last time Coloradans voted on raising the minimum wage was back in 2006 on an amendment known as Initiative 42 which raised the state’s minimum wage from $5.15 to $6.85, while also requiring increases every subsequent year for inflation. As a result, Colorado now has a minimum hourly-wage of $8.31, which many Coloradans still feel is inadequate and are working to increase it to $12 by 2020.
If Colorado’s minimum wage is rising over time and is supposedly adjusted for inflation, why is there a large push to increase the minimum wage to $12?
In large part this is because the inflation requirement was added after a period of years in which the minimum wage in Colorado had not been adjusted with inflation. So, in effect, when we finally started adjusting minimum wage for inflation, we were jumping into the race well after the starter pistol had already been fired.
This is why, even though it’s been going up in Colorado, the minimum wage still used to be worth a lot more than it is worth today.
A Colorado worker can only buy about 75 percent of what a Coloradan working for minimum wage in the late 1960s was able to purchase, despite the fact that today’s average worker is better educated. If the minimum wage had kept up with inflation since 1968, today’s minimum wage would be set at $11.12, instead of $8.31 according to CFI’s economist, Chris Stiffler.
Failing to keep up with inflation is not the only fallacy in our current minimum wage policy, however, as inflation-based adjustments do not account for the cost of living. With Colorado’s $8.31 minimum wage, a full-time minimum wage worker would earn about $300 per week, or $17,000 a year.
To put this into perspective, The National Low Income Housing Coalition estimates that, on average, a worker earning minimum wage would have to work 80 hours a week in order to afford a modest one-bedroom apartment within the state of Colorado. With stagnant wages and continual increases in the cost of living, low-wage workers struggle to make ends meet.
This year’s initiative to increase Colorado’s minimum wage, known as the $12 Minimum Wage Amendment, would increase Colorado minimum wage to $9.30 in 2017 with an additional 90-cent increase every year starting Jan. 1, until it reaches $12 by 2020. In addition, the minimum wage would not be lowered in years when the inflation rate was negative.
How does this increase compare to what’s happening in other states?
Washington will vote this November on raising its minimum wage to $13.50 by 2020. In addition, many other states have already agreed upon increases in their minimum wages. California, New York and the District of Columbia have all enacted laws to increase their minimum wages to $15 per hour within the next six years, with New York being the first to reach $15 by 2018. Oregon’s minimum wage will reach $13.50 per hour by 2022, and Massachusetts’ minimum wage will rise to $11 this coming year.
An estimated 500,000 workers in Colorado would be affected by an increase in the minimum wage, with 86 percent of the people who would benefit over the age of 20.
An increase in the minimum wage does not just help low-income Colorado families. Colorado’s economy as a whole will also experience some positive effects. Higher wages are also linked to lower employee turnover rates and Coloradans will see an increase in their purchasing power, meaning more people will increase their spending, which circulates back through and boosts the economy.
To learn more about the $12 Minimum Wage Amendment, visit http://www.coloradofamiliesforafairwage.org/
“Coalitions to pass a ballot measure are difficult to build and maintain, and that’s especially true for coalitions that are looking to even partly address Colorado’s profound fiscal challenges. Because of our system, it means millions of dollars and months, if not years, of manpower devoted to a ballot initiative.
“CFI is disappointed the effort to pass the Colorado Priorities ballot measure did not successfully make it to the finish line. All signs indicate there is broad public support for the changes proposed in the ballot measure and that it would benefit communities across the state. And the ballot measure itself was a very modest step that represented an enormous political compromise among various interests.
“For CFI, there is nothing more fundamental to the long-term success of Colorado than a measure such as this one that helps support thriving communities. In our current system, voters are supposed to be the decision makers on issues such as this one, but in 2016, they will not have the opportunity to let their voices be heard. We believe there will always be distractions and reasons to not do the bold things that are needed to propel our state forward, and it is tough to let such an important opportunity slip away.
“Colorado was built into a successful state more than a century ago by visionary citizens who understood that you can’t get something for nothing — that revenue helps create thriving communities. Roads that connect markets, schools that create educated future workers and colleges that drive economic innovation don’t simply happen on their own. Revenue builds thriving communities, and we must all chip in — every one of us — if we want the building blocks that produce thriving communities. The Colorado Priorities measure would have helped us keep building the kinds of communities our forebears envisioned.”
“We want to reassure all of our partners who have worked with us on the Count Me In campaign, which is simply aimed at spurring Coloradans to vote the full ballot, that these efforts are separate from the Colorado Priorities campaign and will continue. We believe that regardless of what is on the ballot, Coloradans should be fully engaged and not leave it to others to decide the outcome of ballot issues that shape our communities.”
Carol Hedges
By Carol Hedges
CFI Executive Director
A few years back, as part of a statewide effort to find out what kind of Colorado we wanted, I was told of a community effort in Estes Park to get the town to approve new street lights that pointed downward, new technology that kept the streets well-lit while preserving the amazing view of a night sky filled with stars and the moon. I remember thinking what an incredible role we can play in making Colorado communities our own.
So as we head outdoors this Fourth of July weekend to enjoy those things that brought us here or keep us here in Colorado — our incredible natural environment — it’s a perfect time to remember that our democracy needs our attention. Regardless of whether we’re hiking a fourteener, attending one of the state’s multitude of Fourth festivals or enjoying a backyard barbeque, our experience benefits from being part of a thriving, well supported community.
It is easy to take for granted the roads we travel on, the clean water we enjoy, the safety we feel from knowing that, should an accident occur, there are first responders ready to help out. Those sometimes hidden benefits don’t occur by accident, and as voters in Colorado, we have a big say in how effective our public services are. Uniquely, our votes matter in Colorado not just in electing our representatives to lawmaking bodies; we also directly decide a myriad of citizen initiatives that affect our quality of life.
This fall, we will once again be asked to weigh in on the question of what kind of Colorado we want. With the noise of the presidential election, it’s easy to forget there is more than one decision to make on our ballots, decisions that will shape the economic future of our state. Voters will decide how much the lowest wage earners should make, a decision that affects the well-being of families and the economic vitality of communities. We’ll be asked if the state should keep and use the money collected from our rapid growth to be used to offset the costs also associated with expansion. We’ll be asked to consider major changes in the way we pay for health care in the state. And, among other things, we will be asked if we want to make it more difficult to amend our state constitution.
These questions are not easy to sort out, but we still must live up to our responsibility and become informed on the ballot measures we are charged to decide. Luckily, there’s a great place we can go to become that informed voter. It’s called Count Me In, and it will provide easy access to information on ballot measures to encourage voters to vote all the way to the bottom of the ballot.
Please visit www.CountMeInColorado.com throughout the summer and fall to see the latest on ballot measures.
When you’re enjoying fireworks this Fourth of July, stop and make a commitment to yourself and your community to vote — and encourage everyone you know to vote and vote the whole ballot. It’ll make a great birthday present for America.
The Joint Budget Committee this week heard the latest revenue estimates from the Colorado Legislative Council and the Office of State Planning and Budgeting. Here are five essential takeaways.
By Chris Stiffler
CFI Economist
1. No TABOR rebates projected for this year or next
The state will be able to use all the money anticipated to be collected through 2017. The reduced expectation for General Fund Revenue has reduced the amount that must be given back in TABOR rebates. In the March forecast, Colorado was projected to have no rebates for tax year 2016 and return $59.3 million in tax year 2017. Now the projections show zero TABOR rebates for both 2016 and 2017. The state is projected to have to give back $143 million in TABOR rebates in 2018.
2. Economic growth continues even though the oil and gas industry retreat is significant
Corporate income tax revenue this year (FY 2015-16) is expected to decline by 7.5 percent and fall by another 5.3 percent next year. The decline reflects the impact of lower oil prices on energy industry earnings. Even so, Colorado is still outpacing other top oil and gas states in economic growth.
3. Oil and gas court ruling will cost Colorado
Early this year, the Colorado Supreme Court ruled in favor of BP Energy over the contention that oil and gas companies could deduct the cost of capital from revenue. This interpretation of the tax code means the state owes money to oil and gas companies, which means less money to use for schools, colleges and other priorities. The ruling won’t impact the FY 2015-16 budget (the budget that ends at the end of the June) because of action by the 2016 legislature, but it’s costing schools and other priorities an estimated $51.4 million for the FY 2016-17.
4. Slowing sales tax collections is a big reason why revenue expectations have been lowered
Expectations for sales tax revenue were lowered by $67.5 million for the FY 2015-16 budget and $156.9 million for the FY 2016-17 budget. Several factors contributed to the reduction, including subdued consumer activity, reduced spending because of the downturn in the oil and gas industry and weaker stock market gains. Amazon tax collections are also lower than anticipated. As of Feb. 1, Amazon began collecting state sales tax on certain online purchases. From the first three months of collections we’ve learned that the boost in sales tax collections as a result of a change in Amazon’s policy isn’t nearly as significant as anticipated. One contributing factor is that sales tax is collected on items purchased directly from Amazon and not collected on the third party transactions through Amazon’s system.
5. Slower growth means a smaller savings account
Because of the slowdown in tax collections, General Fund revenue is expected to be $268 million, or 2.6 percent, lower than the amount budgeted to be spent or retained in the reserve in FY 2016-17. This leaves the General Fund with a 3.7 percent reserve that is much lower than the 6.5 percent reserve currently in statute. A 12 percent to 15 percent reserve is needed to weather an economic downturn without having to make significant cuts. Colorado’s savings account is running low.
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