This Tax Day, it’s worth remembering that tax policy is spending policy – and right now, Congress is poised to extend hundreds of billions in tax breaks for the wealthy while forcing cuts to public services the rest of us depend on. In Colorado, TABOR compounds the harm by limiting how the state can respond, even in the face of growing needs.
The Tax Cuts and Jobs Act (TCJA) of 2017 was the largest set of tax reforms at the federal level since the mid-1980s and the largest corporate income tax reduction in U.S. history. As the Colorado Fiscal Institute and Rocky Mountain Values wrote in a recent report, the top 5% of Colorado earners received 51% of the benefit of the tax cuts; the bottom 40% received just 5% of the benefit.
In early April, Congress passed a budget resolution that creates a blueprint to extend the individual tax cuts from the TCJA, originally set to expire at the end of 2025. The corporate tax cut, from 35% to 21%, was made permanent back in 2017 – a strategic choice to meet procedural rules while ensuring permanent tax cuts for corporations. Individual tax provisions, including rate cuts and the increased standard deduction, sunset after 2025, allowing the bill to appear deficit-neutral in the long term, even though the true cost would balloon if those cuts were later extended. We’ve now reached the sunset period, and that ballooning is in full view.
These extensions are framed as “tax relief,” but the reality is far from it: because reconciliation requires deficit neutrality, these tax breaks are effectively paid for by slashing federal programs like Medicaid, housing assistance, and food support. If the TCJA extensions were accounted for as regular expenditures, we’d recognize them for what they are: massive outlays targeted to the rich.
Renewing the TCJA tax cuts would cost $4 trillion over the next decade. That’s $400 billion per year – more than the entire federal budget for food assistance, housing programs, and early childhood education combined. That’s not a tax cut, it’s a trillion-dollar spending program for the rich.
But the ripple effects don’t stop there. As the nonpartisan Congressional Budget Office (CBO) reported last week, extending the expiring TCJA tax provisions and enacting an additional $1.5 trillion in tax cuts – as the Senate Republicans have proposed – would hit the economy hard. Gross National Product (GNP) per capita would shrink by $4,375 (in today’s dollars) by 2055. As the CBO puts it, “larger deficits and debt would reduce the resources available for private investment,” reversing any short-term gains purported to materialize from extension of the TCJA. The result: slower wage growth, higher borrowing costs, and long-term economic drag.
Because Colorado’s income tax is based on federal taxable income, changes in federal tax policy – such as rate cuts combined with base-broadening measures like limiting deductions – can increase Colorado’s state tax base, even as overall tax liability at the federal level declines. While this might generate more revenue in the short term, under TABOR, that revenue is constrained. If collections exceed TABOR’s revenue cap – even due to federal changes – the state must issue refunds rather than invest in services. So, paradoxically, letting TCJA expire reduces Colorado’s revenue base; extending it triggers TABOR refunds, blocking badly needed public investment. At the same time, federal program cuts will force the state to fill the gap.
The short answer is No. While other states are taking steps to prepare for looming federal cuts – creating trust funds, raising new revenue, or expanding rainy-day reserves – Colorado is constitutionally barred from doing so. TABOR prohibits proactive fiscal planning, including tax increases or new revenue mechanisms altogether, unless approved by voters. That makes it nearly impossible for the state to build cushions against major federal retrenchment.
And the cuts could be severe. The Colorado Department of Health Care Policy and Financing estimates that just one policy change – the elimination of the Federal Medical Assistance Percentage (FMAP) floor – would cost the state more than $1.5 billion in fiscal year 2026–2027 alone. And that’s just one possible scenario. The total impact of federal program reductions could be far larger, and Colorado would have no clear way to replace that lost support.
Without the ability to raise revenue, the state would be forced to dramatically slash public services or divert funds from already strained programs. This is not a theoretical concern – it’s a structural vulnerability built into the state’s constitution.
Colorado faces a unique fiscal paradox: while more revenue could result from TCJA extension, there is less capacity to meet growing needs. Without the flexibility to respond, the state will be forced to cut essential services – not for lack of resources, but because our constitution won’t allow their use.
Tax policy is never neutral – and in this case, the stakes couldn’t be more clear. The combination of federal tax cuts, declining federal aid, and Colorado’s constitutional fiscal straitjacket presents a triple whammy for Coloradans. That’s why today we rally with our partners to demand a system that puts working families first – not billionaires and big corporations.
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