Colorado should consider a two-step income tax rate
By Don Marostica, The Denver Post
For Colorado to compete in today’s global economy — and tomorrow’s — we need to invest in an education system that is second to none. And we need to come up with the best way to pay for it.
As an economic development expert, I am not convinced that Colorado’s current single-rate tax structure is helping our economy. Instead, businesses and middle-class Coloradans alike would be better off with a two-step income tax to provide the resources for top teachers and great facilities.
The No. 1 priority for businesses seeking a new location is a well-educated, fully prepared workforce. Improving the education system is not only in the best interest of Colorado companies but is also an investment in the excellent labor pool they need to be competitive in the state, in the country and in the world, as well.
Yet we’re under-investing in education, in part because we’ve prioritized low taxes ahead of everything else. While it might not feel like it on April 15, Coloradans pay a very low rate of state income tax: 4.63 percent, regardless of income. For state taxes paid per $1,000 of income, Colorado ranks 48th. When state and local taxes are combined, Colorado is still near the bottom at 45th, below Texas and all our other neighboring states.
Now under consideration to present to voters in November are a couple of possible ways to raise money for education. One is through the current single-rate tax with a somewhat higher rate. Another is to move to a two-step graduated tax, where those with the highest incomes pay a somewhat higher rate.
Under either proposal, everyone with taxable income pays a few dollars more in exchange for important investments in education that will pay off for the entire state. But the graduated approach keeps rates lower on Colorado’s middle class than on those with the highest incomes.
Why keep rates a bit lower for middle-class and lower-income families? Middle-class families tend to spend most of their income locally on basic necessities like food and rent, creating opportunities for businesses here in Colorado.
Many business owners are middle class, too. The owners of start-up businesses — the biggest engines of future job growth — usually have only modest profits for the first few years while they’re investing in the business. So their taxable incomes tend to be low, and they benefit from the graduated rate. And in the long run, a well-educated workforce is good for all of us.
Some business people are opposed to changing from a single-rate tax, saying higher-income business owners who may be considering a move to our great state won’t find Colorado attractive. The reality is businesses won’t reject a move to Colorado over the small difference in these two proposals.
Not only would it apply only to personal taxes, not corporate taxes, but the graduated approach will cost only $5.50 a week for someone earning $200,000 a year as well.
Finally, if you really want to understand whether moving away from a single-rate tax will hurt Colorado, let’s take a look around the country at the economy in other states. The most recent JobsGrowth USA report from the W.P. Carey School of Business at Arizona State University shows that of the 10 states creating the most jobs right now, six have graduated-rate income taxes, two have single-rate income taxes, and two have no income tax at all.
I’d like to think that businesses choosing Colorado want to be important partners in contributing to a world-class education system, our vibrant communities and our very special Colorado way of life. The two-step graduated tax would help us build the kind of state we all want and at the same time cut middle-class Coloradans a better break.
After all, we’re all in this together.
Don Marostica is the former executive director of the state’s Office of Economic Development and International Trade and a former Republican state representative from Loveland who served on the Joint Budget Committee.
(Don is also the President of the Board at CFI.)
Read more: Colorado should consider a two-step income tax rate – The Denver Post http://www.denverpost.com/opinion/ci_23269674/colorado-should-consider-two-step-income-tax-rate#ixzz2Uci9b1gM
