Counting the Hidden Costs of Colorado’s Tax Code

TABOR might promise a government on a diet and fatter refund checks, but Colorado’s wallet feels the pinch. It’s one of the tightest tax laws in the country, quietly deciding what our state can and can’t afford. If this makes you scratch your head or mutter, “Wait, that’s fishy…” you’re in good company.

March 27, 2026

Did you know that since TABOR passed in 1992…

…Colorado has been locked into a tax system that can’t respond to major federal changes like H.R. 1?

In its basic form, H.R. 1, the One Big Beautiful Bill passed in July 2025, is a massive tax cut for the wealthy funded by cost shifting to the states the costs of safety net programs like Medicaid and SNAP.

While other states are in position to adapt to those cost shifts, Colorado is uniquely in bad shape to absorb those cost shifts for three reasons:

1. Federal tax changes hit Colorado automatically

Colorado is tied by federal taxable income and rolling conformity where it instantly applies federal tax deductions and carries federal tax code changes to its state tax system.

So when the federal government passes tax deductions like no tax on tips or huge corporate loopholes, Colorado automatically adopts those deductions.

• H.R. 1 cut Colorado tax collections by around $1.2 billion
• Most states only have to adjust to the social safety net spending changes
• In Colorado, we also took a revenue hit

2. States are being forced to pick up new costs

Some provisions of H.R. 1 declare states must absorb the cost-shift of SNAP and Medicaid.

For instance:

• Starting in 2027, Colorado will have to pay 10% of the cost of SNAP ($180 million)
• SNAP has always been federally funded since the 1960s

TABOR stops Colorado from raising the money needed to cover the harm.

• Other states’ elected officials can raise taxes to account for the cost shift
• That isn’t true in Colorado
• Due to TABOR, any tax increase would have to get voter permission

3. Colorado was already in a budget hole

Colorado’s current tax system wasn’t keeping up in real terms even before H.R. 1.

• Legislators are currently trying to bridge a $1.5 billion shortfall
• This is before the spending cuts from H.R. 1 take effect in 2027

The main funding source for Colorado’s budget, the flat 4.4% income tax, is inadequate.

(Look at our previous TABOR con to read more about a flat tax)

What CFI is supporting

That is why CFI supports a ballot measure for a Graduated Income Tax (GIT) and is part of the Protect Colorado’s Future coalition.

A GIT taxes income at different rates based on their income.

• Would decrease taxes for 97% of Coloradans
• Only increases tax rates on income over $500,000
• Earners under $500,000 would see a decrease in their tax obligation

Meanwhile:

• Only 3% of Coloradans would see an increase in their tax rate
• Would raise around $2 billion for health care, education and child care

How this interacts with federal tax cuts

Where the ones paying more are the same ones who just got a huge tax cut on the federal taxes from H.R. 1.

• Federal changes gave approximately $71,000 tax breaks to the top 1%
• The proposed GIT would ask that same tax filer to contribute about $61,000 more in state taxes

On net:

• With the GIT and H.R. 1, the top 1% still gets a tax cut
• The system still favors the highest-income earners at the expense of Colorado’s families

The bottom line

This is how TABOR, who prohibits a graduated income tax, sets us up for failure with harmful targeted federal changes like the ones in H.R. 1.

Fortunately, we have a chance to change this on the ballot in November 2026.

More specifically:

• TABOR ties the state to a flat tax
• It prevents us from raising the money necessary to cover these harms

Therefore, it is crucial that Colorado supports a graduated income tax to rebalance the scale.

Take Action

Did you know there’s a statewide effort already underway to update Colorado’s outdated flat tax system? Protect Colorado’s Future is a growing coalition of parents, educators, health advocates, community leaders, and policy organizations working together to build a fairer tax code that actually funds the things families rely on — schools, child care, health care, safety, and economic opportunity. If you’re ready to move from receipts to results, learn more and get involved at ProtectColoradosFuture.com.