Though the 2021 legislative session ended the week prior, the Joint Budget Committee was still at work last week to hear from state economists about the newest revenue outlook.
Overall, Colorado’s economy is coming out of the pandemic in a good position, thanks in large part to strong public investments. Tax dollars invested in workers’ paychecks and public goods are a win-win for the state, though as with any good economy in Colorado, the return of constitutionally mandated tax rebates will mean the state can’t fully invest the fiscal rewards of a strong recovery.
Here are our top give takeaways from last week’s revenue forecast:
#1 – Many economic metrics are back above pre-pandemic levels
The economy is expected to grow by a very strong 6.5% in 2021. Retail sales are back above pre-pandemic levels with even the hardest-hit sectors like leisure and hospitality catching up—though they still remain slightly below pre-pandemic levels. Colorado’s has regained two-thirds of the jobs we lost since pandemic began and Colorado is now back up to trend levels of sales tax collections. Personal Income growth is also well above where it was before the COVID recession.
The best stimulus is one that gets spent right away, and the data shows the unprecedented federal stimulus to combat the pandemic did just that. A quarter of the growth in personal income is attributable to increased federal spending (direct payments, extended unemployment benefits, business assistance, and individual tax policies). Consumer spending accounts for roughly 70% of the economy and data shows that consumer did a lot of spending in the beginning of the year. Sales tax collections are soaring. This does bring with it one of the current economic headwinds: supply still hasn’t caught up to pre-pandemic levels despite even though consumers are unleashing pent-up demand, particularly on in-person experiences that they missed out on in 2020.
#3 – A big General Fund rebound means this wasn’t a typical recession
Because of pandemic-related delays in 2020 tax returns, state economists didn’t have their usual income tax collections in March 2021 to do their projections. With the data now available in June, those figures were significantly revised upward. Compared to the March 2021 revenue estimates, this year’s budget will have $1.6 billion more than we thought 3 months ago. High income earners in Colorado continue to do very well, pushing up General Fund collections and the federal stimulus (direct payments and unemployment insurance payments) had big stimulating effects. It’s not typical to have unemployment rates above 6% (Colorado’s unemployment rate stated steady at 6.4% for last 3 months) and also to be talking about general fund surpluses.
#4 – Not all General Fund revenue growth will fund public investments
State economists are expecting TABOR rebates in each year of the forecast period. Revenue is expected to exceed the TABOR revenue limit this year by $440 million, $658 million next year and $908 million two years from now. That $440 million will be returned to taxpayers this year via three methods: the homestead property tax exemption, the six-tier sale tax rebate, and a reduction in the state income tax rate from 4.55% to 4.50%. (Technically, revenue will exceed the limit by $551 million this year, as there was too much TABOR revenue refunded in the past since legislators readjusted the revenue limit in SB21-260).
#5 – Next year’s budget (FY2022-23) will be a big swing from bad to good
In May 2020, we were talking about a potential double-digit drop in General Fund collections (which were modeled off the last two recessions). But this recession wasn’t like the last two. With unprecedented federal stimulus and the strong growth in income tax collections from high-income earners, current revenue collections are expected to grow by a whopping 11.4% over last year’s levels despite the constitutionally mandated tax rebates. This means the budget legislators will begin working on in January 2022 will have $3.2 billion more than what was spent in the FY2021-22 budget. And that’s on top the 13.4% General Fund reserve (basically the state’s savings account) which is also much larger than it’s been in years.
You’d think we could all agree that very wealthy folks don’t need big tax breaks in order to get them to spend money. But the debate over reforming Colorado’s 529 savings program—a tax incentive to encourage saving for college which should be targeted in a more equitable way—is proving otherwise. Taxes are ripe for confusion and any time changes are being considered, some taxpayers who will lose their ability to pay less in taxes will object. That’s exactly what’s happening with HB21-1311, which would, among other provisions, change the state’s tax incentive for college savings.
Colorado’s 529 tax deduction was adopted in 1981 to help low- and middle-income families save for post-high school education. It creates a tax incentive to save for qualified higher education expenses by allowing taxpayers to subtract, dollar for dollar, any contribution to a qualified 529 savings program from their state taxable income.
The state deduction advantage is not the biggest tax benefit of saving through a 529 plan. Federally, any interest or return on investment gained on 529 investments is tax-free federally (and at the state level) when it is used for allowable purposes. This means, for example, if a family saves $60,000 for a child’s education over 15 years, any interest on those investments can be used for college expenses without being reported as income. These tax advantages make 529 investments an attractive way to help incentivize saving for the constantly rising cost of higher education.
And who is using the tax advantages from Colorado’s 529 incentivized savings program? Lots of Coloradans. In 2017 (the newest Department of Revenue data available), 55,565 taxpayers claimed the deduction. However, that same data shows the program largely benefits Colorado’s richest taxpayers—people who don’t really need an incentive to save since they can often pay cash for tuition and education costs.
Source: Bell Policy Center
However, taxpayers with adjusted gross incomes of more than $500,000—the threshold for being in the top 1% of Colorado taxpayers—make up 6.2% of Colorado taxpayers claiming the 529 deduction and have an average deduction of $28,327. And despite being such a small group of people, those deductions make up 24% of the total spent on this deduction. To reiterate: The top 1 percent of Colorado taxpayers claim 24% of this tax deduction.
A tax incentive to save for college is vastly different than a tax credit to make college tax free. The 529 deduction isn’t designed to make college costs tax-free. It’s designed to encourage people to put money away for a big and important future expense. While it’s been made confusing by those wanting to protect the current deduction, the reform contained in HB21-1311 does not change the tax advantage of saving for college through a 529 for most Coloradans, only those who are wealthy enough to put away very large amounts of savings.
Colorado’s 529 deduction was authorized to help low- and middle-income families. Imposing an annual cap on the deductibility of 529 contributions of $15,000 per beneficiary—contributions won’t be capped and will still get favorable tax treatment for investment returns and interest—will enhance the ability of this credit to meet its original objective. While the cap will mean that some of the highest income investors will lose a portion of their tax deduction, few (if any) low- and middle-income families would see any change in the deductibility of their investment.
Let’s use a practical example to show just how much a middle class family would have to save to be affected by the proposed annual cap amount. A taxpayer earning Colorado’s median annual household income of $70,000 would have to save nearly 20% of their income each year. That is an unrealistic annual college saving rate.
In fact, the 2017 data shows that the average annual deduction for taxpayers earning that median income is $3,730, a fairly healthy amount but nowhere near the cap proposed in HB21-1311. It’s hard to imagine that those taxpayers have much more room in their budgets considering that, on average, those same taxpayers devote over 30% of their income to housing. The 2017 data reveals that no group of taxpayers (other than those with incomes above $500,000) come close to the proposed cap of $15,000. 32 of the 36 states that allow income tax deductions for 529 savings have a cap.
Most states that allow income tax deductions for 529 plans have a cap
The current deduction means those with financial resources to pay cash for college expenses can do so tax-free but those who lack those cash resources are required to pay for college from taxed assets. That hardly seems fair, does it?
What makes the current rules of this deduction even more unfair is that one of the reasons college costs are growing so fast is the lack of state investments in higher education. Tuition at Colorado public universities is growing faster than all but five other states. Support for higher education ranks us second-to-last among all states.
Of course, the primary reason for lack of state support is lack of state revenue, a problem made worse by inequitable treatment of 529 deductions that allows the wealthiest to pay less. That lack of state revenue has also resulted in a bigger part of college costs being paid by students and families in Colorado. Since 2000, the portion of tuition costs paid by families has increased from 32% to 61% while the state contribution has fallen from 68% to 39%, making it harder for low- and middle-income families to afford college and other higher education opportunities for their kids.
Tax cuts passed in 1999 and 2000 directly affected the state’s ability to fund higher education, shifting responsibility for paying tuition to students and their families.
The COVID-caused recession has laid bare the many inequities that plague our public systems. And “building back better,” a slogan that’s been embraced by our legislators this year, is a goal Coloradans across the state are embracing too. Modernizing and reforming our tax code, like adding a cap to the deductibility of 529, is the path forward to make it work for more than just a few wealthy people.
The deduction cap, as well as other tax code clean-ups in HB21-1311 and HB21-1312, are common sense, data-based reforms we need now. It’s time to change the rules so that those with the assets to pay cash for college are not relieved of their responsibility to pay state taxes at the expense of students in families who struggle to afford higher education.
For FY2020-21 revenue is expected to fall by only 1.1 percent compared to the prior year. These revenue estimates have been revised upwards substantially (by $571 million) from the December forecast, driven by strong revenue collections data and upgrades from economic outlook caused by vaccine distribution and another federal stimulus.
#2: A very rosy General Fund outlook for next year’s budget (FY2021-22)
To put that drastic upward revision into perspective, in May 2020 we thought the FY2021-22 budget would have $10.3 billion in revenue, now the state economists believe it will be closer to $14.9 billion. That means there will be $5.29 billion more to spend on next year’s budget compared to the current budget. While there were significant cuts in the current budget that need to be restored and lawmakers will need to build the General Fund Reserve back up, there remains a lot for legislators to work with when writing next year’s budget.
#3: Low-wage workers are still dealing with big job losses
Broad-based economic measures look strong: national GDP has almost recovered and retail sales (along with sale tax revenue) are already back above pre-pandemic levels. As of January 2021, Colorado has regained 57 percent of the jobs we lost since the pandemic. The jobs that haven’t yet bounced back are in sectors that have lots of low-wage jobs. For example, the number of jobs paying less than $27,000 a year are still down 30 percent, while there are currently more jobs that pay above $60,000 a year than there were before the pandemic began. Not surprisingly, the Accommodations and Food Service industry still remains the hardest hit by COVID.
Unlike The federal stimulus in the wake of the pandemic was
much greater this time around than during the Great Recession. US personal income
is up a whopping 13 percent between January 2020 and January 2021. To put that
in context, two years after the Great Recession personal income was still below
pre-recession. The size of the two federal stimulus packages, which totaled
roughly $41 billion for Colorado, were about 10 percent of state GDP.
#5: Despite structural deficits, TABOR rebates could be back very soon
Revenue is bouncing back more quickly than economists expected this time last year. In fact, forecasters pointed out that were it not for our constitutionally mandated revenue cap, we would be able to take advantage of this quicker-than-expected growth and pay and pay for the still-rising cost of providing services for our growing population. Instead, we will be looking for ways to cut back our community investments.
In a typical economic downturn, it takes a few years for revenue to recover. During the Great Recession, once revenue subject to TABOR fell, it took seven years to catch back to the Referendum C cap. State economists are currently predicting it might only take two years following the COVID recession. Next’s year’s budget (FY2021-22) will be $329 million below the cap. With a cloudy crystal ball about what tax returns will look like for 2020, there’s a potential that we could be back into a TABOR rebate situation as early as next year.
A few weeks ago, on my 10,000th 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 toldThe
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.
Source: creativemarket.com/eyeforebony
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.
[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.
[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.
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 popularityfor 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.
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.
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 incomewhen 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 moneyevery 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.
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.
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
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
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.
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.
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.
