Coordinated plan to save Colorado schools: Tax the rich

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DENVER | As the statewide recession deepens, education boosters say a tax on the rich is the only way to protect schools from deep cuts and teacher layoffs.

A coalition including the Colorado Education Association — the teacher’s union — and Colorado Association of School Boards is helping gather signatures for a taxing scheme to raise income taxes on about 5% of Coloradans while giving small cuts to everyone else.

If the plan, Fair Tax Colorado, garners enough early support, voters would consider the tax on their November ballots.

As the Sentinel reported Thursday, state lawmakers are facing a more than $3 billion budget deficit brought on by the novel coronavirus pandemic and economic restrictions. Sales taxes and severance taxes on mineral production in particular are plummeting. That means spending on health, higher education and K-12 schools could see big cuts to help balance the budget.

“This year is going to be bad for school funding,” said Cheri Wrench, executive director of the Colorado Association of School Boards. “Next year is going to be worse.”

Wrench and others say the tax scheme could help rescue the beleaguered school funding system and prevent widespread teacher layoffs. It’s a proposal developed before the pandemic, but supporters say is even more pertinent now.

School officials say they face almost insurmountable difficulties in trying to reopen schools, even without further budget cuts.

Opponents of the measure say the tax change would come at the wrong time, hurt the economy and pump money into a broken school finance system.

Much of the proposal is based in an argument that the state’s tax system is inequitable and disadvantaging most Coloradans.

To that end, the ballot initiative would remove a constitutional requirement that every Coloradan’s income is taxed at the same rate.

Then, different income brackets would be created, giving a tax cut for incomes below $250,000 but a tax raise for earners above that threshold. State legislative analysts said before the pandemic the plan would generate $1 billion in the next fiscal year and $2 billion annually thereafter mostly torn from earners pulling in above $350,000 a year.

Half of the money would be earmarked specifically for K-12 education. The other half would be spent to “address the impacts of a growing population and a changing economy, of which no more than 10 percent may be expended for administrative costs.”

It’s now unclear how much money the plan would net.

State analysts would have to take the current economic upheaval into account before making another estimate.

But the tax rate changes would be set in stone.

Specifically, the tax plan would cut income owed on the first $250,000 of a resident’s annual income from the rate of 4.63% — expected for the 2021 tax year — to 4.58 percent.

The vast majority of Coloradans — about 2.9 million — fell into this category between 2016 and 2018, according to the state analysis.

Currently, a Colorado resident earning $50,000 annually shells out about $1,223 in income taxes each year. Under the new plan, that earner’s annual income tax would be about $13 less — saving about a dollar a month.

The tax plan hinges on raising most of its revenue by spiking income taxes on everyone reporting higher incomes.

That wealthy cohort is small but mighty, including just 111,000 Coloradans, according to the report. The tax rate would increase progressively for incomes about $250,000, reaching 8.9% for individuals raking in $1 million or more.

For the taxpayer earning an annual $400,000, income taxes would jump from $15,284 to $17,057 each year.

The plan falls flat for Luke Ragland, an opponent who leads the center-right education reform group Ready Colorado.

He called the proposal “tragically misguided.”

“I don’t want to understate how serious the budget situation is in Colorado; it’s dire,” Ragland said. But he thinks wealthy tax payers would threaten to leave if the tax overhaul passed, possibly spurring wealthy “jet-setters” away from Colorado and robbing the state of the revenue it intended to collect.

But Ragland sees a more fundamental failure in the way the state spends education money, and he would like to change that.

The state uses a formula to calculate how much money local districts will receive, taking a slew of factors into account, including the number of students, the area’s cost of living and the kind of students, such as special education pupils or those deemed at-risk of slipping through the cracks.

Ragland isn’t alone in calling for changes to this formula. State lawmakers have considered overhauling the way districts are funded for years. That includes an early attempt this legislative session later dampened in the uproar of the pandemic.

Meanwhile, educators insist the state is in a dire situation.

It’s a system they say is still underfunded after the last recession created budget shortfalls still robbing schools of much-needed funding. Teachers say they are chronically under-paid. For raises, Aurora school district brass turned to neighborhood taxpayers for cash  — not wealthy residents spread out across the state.

Fair Tax Colorado would also create a commission to shed light on other inequities in the tax system.

The November ballot could become crowded with initiatives. It’s possible voters would consider Fair Tax Colorado alongside another, conflicting proposal: an income tax cut for every resident proposed by free-market advocates. 

If both measures end up on the ballot in November, the initiative with the most votes would win.

Calculate how much money you would save, or lose, with the Fair Tax Colorado calculator. 

Read the current ballot title language here.