Raise the Sales Tax, Fund Roads, and Provide Affordable Transit; CFI’s Take on HB17-1242
by Chris Stiffler
CFI Economist
House Bill 17-1242, which would ask voters to approve a sales tax increase to provide additional funding for roads and transportation, is working its way through the Capitol. If passed by voters, the current state sales tax rate of 2.9 percent would increase to 3.52 percent.
The sales tax increase would generate an additional $651 million for Colorado in 2018. (It’s interesting to note, that the revenue from this sales tax increase is almost equal to the amount of revenue lost this year by cutting the income tax rate from 5% to 4.63%, as the legislature did in the late ’90s.).
If we want more revenue for transportation, raising new revenue is the only option. Cutting from other parts of the state budget is the wrong track. Right now, our state’s constitutional restraints on revenue force us into awkward budget dilemmas. Our economy is growing but our elected leaders can’t use the revenue that comes from normal economic growth to fund the priorities that build thriving communities. Instead we trade cuts for schools for cuts in long-term care for seniors. We eke out a road budget as we try to keep tuition affordable.
These are false choices that lawmakers have been forced to make for years amid a backdrop of an outdated tax code coupled with forced tax rebates. This state simply doesn’t have enough revenue to do the things it needs to build thriving communities, and our communities can’t afford to pilfer existing revenue from the general fund to do what we need to do.
An increase in the state sales tax from 2.9 percent to 3.52 percent would be the largest infusion of revenue for transportation in decades. But because it would increase the sales tax, a tax that already falls more heavily on people with lower incomes, we strongly urge that such a tax increase be coupled with a way to offset costs for these families by reserving some of the new revenue to make public transit more affordable for low-income Coloradans
Let’s be clear about something. At this point in Colorado, nearly any tax increase that does not involve a progressive, or graduated, income tax is regressive. This means that it will consume a greater portion of the earnings of lower income Coloradans. But TABOR, specifically forbids Colorado from returning to a graduated income tax, a system we had for decades and one used by all but a few states.
Currently, a Colorado household making $35,000 a year pays 4.6 percent of its income in sales tax, while a household earning $140,000 pays 2.2 percent in sales tax. With a sales tax increase to 3.52 percent, that $35,000 earning household would pay an additional $125 a year in sales tax to help fund roads, while the $140,000 earning household would pay about $290 more in sales tax. Though the higher-earning household pays more sales tax in actual dollars, it’s the lower-earning household that will pay the higher percentage of its income in sales tax.
This biased treatment of taxpayers, should be addressed.
Right now, a typical low-wage transit user in Denver pays about $80 a month in fares or about $960 annually. Increasing the state sales tax from 2.9 percent to 3.52 percent would significantly increase the amount of money that low income transit users contribute for transportation in the state.
It’s only fair that this additional contribution should be acknowledged and offset. CFI believes that reserving money from the sales tax increase for transit agencies to make fares more affordable for low-income users is the best available way to address the bias built into a sales tax increase. For example, if RTD offered the same half-off fare it currently provides seniors, students and the disabled, to people earning up to 150 percent of the federal poverty level, it could greatly offset the regressive nature of a sales tax increase.
Although the sales tax is a regressive form of taxation, it does have the benefit of generating revenue from tourists. Twenty three percent of the new revenue would come from out-of-state individuals, so tourists visiting Colorado would help contribute to our roads. A higher portion of Colorado’s gas tax revenue is paid by out-of-state residents at 33 percent, but the gas tax is even more regressive than the sales tax.
It is time to ask voters if they are ready to pay more for a better transportation system and it makes sense that we raise those new funds in ways that don’t make those making the least take on an unfair share of the responsibility for paying for the improvements.
