John Horner and Bruce Fogarty
Much of the current legislative debate in our state centers on the question of whether we should raise taxes as well as cut spending to cover the looming deficits in both state and local budgets. On the spending side, the arguments fall into two broad categories: reducing waste and fraud, and resetting governmental priorities. We agree that the costs of government services should be constantly reviewed to maximize their efficacy and efficiency — as the City Committee is doing in the case of the city of Colorado Springs — and that in a representative democracy, citizens should decide what services are appropriate for governments to provide. Both are ongoing concerns of a responsive government and its citizens. Our purpose here is not to confront either of these issues, but instead to challenge the popular misconception on the part of many citizens and lawmakers that Colorado state taxes are high.
First, “high” begs the question of compared to what? Proponents of low taxes claim that low taxes are the key to economic development, by playing a role in where businesses choose to locate and how much citizens have to spend. Conversely, businesses look to government to provide infrastructure and services — such as highways and public education — that form the basis for industry and attract high-quality workers and their families. Thus it makes sense to compare Colorado’s tax burden to that of other states. All states have to work under the same overarching federal structure and provide essentially the same basic set of governmental services. (For instance, education dominates the budgets of all states.)
Next, there are numerous ways to raise revenue. Everyone is conscious of income and sales taxes, but there are many taxes and fees collected by states—most of these you pay directly, some you pay indirectly. For example, if you looked just at state individual income tax revenue per capita, you’d find that Colorado ranks 19 out of 50 in the amount our citizens pay in income taxes ($813 per person). New Yorkers pay the most ($1,793), while citizens in seven states pay no income tax at all. But this comparison of tax burden is deceptive.
Those no-income tax states don’t simply provide services without any revenue; they make it up using other taxes and fees. For instance, two no-income tax states, Texas and Tennessee, have two of the highest sales taxes in the nation, 6.25 percent and 7 percent respectively. Colorado has one of the lowest with 2.9 percent. Texas had the 17th highest state and local property taxes in 2008.
When you calculate in all these other taxes and fees — there are 25 categories of taxes and fees that add revenue into the state budgets — Colorado ranks 41st out of the 50 states in the amount of state taxes we pay per capita ($1,707). Residents in high tax states, such as Vermont ($4,013), may pay more than twice what we do in Colorado, while even residents of Mississippi — the poorest state in the union — pay $2,113.
But even this ranking is deceptive. After all, tax burden isn’t best represented by how much you pay, but by what percentage of your income goes to taxes. For various reasons Colorado is a prosperous state, so when you look at all our state taxes as a percentage of personal income, we rank 48th out of 50, with 3.99 percent of our personal income going to state taxes. That’s just above Texas (3.97 percent) and last place New Hampshire (3.66 percent).
This analysis is based on just released data (2010) from US Census Bureau and the Bureau of Economic Analysis. But had we looked at taxes over the past 20 years, the results are much the same. For example, Colorado’s tax revenue per capita was $320 higher in 2000 in real 2010 dollars ($2,027 per capita) and our ranking then was 39th. As a percentage of personal income, Colorado’s tax revenue was also higher (4.96 percent) in 2000, but still we only ranked 47th back then. In 1992, when TABOR was enacted, tax revenue per capita was $1,587 in real 2010 dollars (ranking 42nd) and only 4.79 percent (ranking 48th) as a percent of personal income.
By any measure, either comparatively or historically, Colorado state taxes and fees are not high, but are in fact quite low. (See research data for this column )
Readers can email John Horner at: firstname.lastname@example.org