How money moves
Democrats made three major changes to the tax system for fiscal year 2023:
- They gave equal TABOR refunds to all taxpayers next year
- They expanded the state’s earned income tax credit.
- They cut property tax rates
First, there is a change in how the state pays TABOR reimbursements next year. Typically, these reimbursements are paid in tiers. Higher-income Coloradans get significantly higher refunds since they generally paid higher tax bills in the first place.
But next year, the state will pay “flat rate” refunds, splitting TABOR refunds evenly among filers.
This is something that has already been done once, in 2022.
This time, each refund will be worth about $800 – a net gain of more than $200 for those in the lowest income tier and a loss of $1,000 for those in the highest tier. (You can double these amounts for households with two filers.)
The second change is the expansion of the state’s Earned Income Tax Credit, which targets low-income working families. The change will result in $183 million being paid to this group.
The biggest benefits for low-income households
The changes will have the greatest effects at both ends of the income scale.
When it comes to changes to TABOR tax refunds and credits, the majority of benefits from the special session will go to households earning less than about $51,000. They could earn between a few hundred and a few thousand dollars, thanks to larger TABOR repayments and the Earned Income Credit. (Much of the variability comes from the Earned Income Credit; its expansion won’t do much for some families, but it could bring more than $1,800 more to some of the poorest working families if they have multiple children.)
In total, this lowest income level, which includes more than 1.3 million tax filers, will receive a total of about $474 million in new tax benefits. About $300 million of that will come from their larger TABOR repayments. The rest will come from the expansion of the earned income credit.
Meanwhile, the TABOR changes will negatively impact those earning more than $104,000. They could lose between $100 and $2,000 in refunds, depending on their income.
The greatest collective costs will fall on the highest income bracket, a group of about 280,000 households earning more than $309,000. In total, the TABOR-related changes will cost them nearly $300 million, the majority of the financial impact.
“We take from the rich and give to the poor. In the short term, we’re putting a little more money in the pockets of low-income people, but we’re not implementing this policy in a vacuum,” said Rep. Gabe Evans, a Republican. He argued that higher taxes on the rich would drive them out of the state and lead to an economic collapse that would harm the poor.
Reduced property tax
However, this is not the end of the calculation. Some of these wealthier families could still come out neutral or ahead since they will also get a property tax cut during the special session.
The legislature ultimately decided to grant each homeowner a $55,000 rebate on the assessed value of their home. They also lowered the statewide assessment rate — which determines how much of the remaining value will be taxed — from 6.765 percent to 6.7 percent.
These changes apply to the current tax year, for which taxes will be paid next year.
Thanks to lower property tax rates, a homeowner with a half-million-dollar home could save a few hundred dollars, while a home worth $5 million would save a few thousand dollars . However, those savings will only offset part of next year’s tax bill increases, which are due to rising property values.
Rep. Emily Sirota, a Democrat, said the package offers benefits to everyone.
“I think we did something for everyone here and Coloradans can feel good about themselves,” Sirota said.
Changes to property tax rates will impact local government and school budgets. The state will give about $145 million to schools, bringing them back to the revenue they would have received under the old property tax rates. And it will also provide about $54 million in “replacement” money to local governments and other local taxing districts.
This should be enough to fully replace property taxes in regions that have seen their tax revenues grow more slowly than 10% during the current revaluation cycle – mainly in rural areas. It will also fully replace earmarked funding for all ambulance districts and fire districts, lawmakers said.
Other faster-growing local communities will get either partial fill or no fill. The theory is that large cities like Denver will still come out ahead – even with lower property tax rates, they will still experience significant revenue gains due to the growth in the tax base.
Republicans said the real estate cuts were too small; they had proposed a much larger reduction program, which would have been financed using part of the state’s budget reserves.
“Just as we have since the end of the 2023 session, we are here fighting for Coloradans, fighting to ensure we save you money and don’t overtax you,” said Senator Barb Kirkmeyer, a Republican.
A final vote on part of the package was briefly delayed after Democratic Rep. Elisabeth Epps of Denver sought to amend a bill to prevent food aid funds from being spent on products from the occupied Middle Territories. East, including the West Bank, East Jerusalem and Gaza. Band.
She then took to the podium with a group protesting Israel’s bombing campaign against the Palestinians and attempted to stop Republican Rep. Ron Weinberg from defending Israel from the well of the room, shouting that he was “inadmissible” because he did not speak directly. to the content of the bill. The situation was defused and Epps left the room.
Help for tenants and help with groceries
Democrats also earmarked $30 million for an aid program for financially distressed renters. And, separately, they enrolled the state in a federal program that could offer $35 million to help low-income families buy groceries next summer — a change that will cost the state about $7 million to administer.
The tax and TABOR changes are only in effect for one year. The debate over the state’s long-term fiscal approach is already well underway.
The special session included the formation of a new committee to draft property tax proposals for next year. At the same time, several groups are already proposing their own reforms to the property tax system that could appear on the November 2024 ballot.