Topline: Colorado voters may be asked this November whether to replace the state's nearly 40-year-old flat income tax with a progressive tax structure under Initiative #195. A new CSI analysis by CSI fellow Ross Kaminsky examines the tradeoffs between generating new state revenue and the potential impacts on Colorado's economy, taxpayers, and competitiveness.
What would Initiative #195 do?
➤ At 8.4%, Colorado would have the highest top marginal income tax rate in the region
➤ Replace Colorado's 4.4% flat income tax with six tax brackets ranging from 3.7% to 8.4%
➤ Generate an estimated $2 billion to $2.7 billion in new state revenue annually
➤ Lower taxes for many residents, while increasing taxes on taxpayers earning more than $510,833 per year
What CSI found
➤ Colorado would gain a net 386 individual taxpayers annually, but still lose approximately $186 million in annual earnings due to migration patterns among higher-income earners
➤ Colorado would lose a net 14 businesses per year and approximately $200 million in corporate profits annually
➤ In the highest income bracket alone, Colorado would lose an estimated 29 firms, representing roughly 4,200 jobs
➤ Colorado's average income tax rate would rise from 4.4% to 5%, making it higher than every neighboring state except Kansas
➤ Colorado's overall tax and fee burden ranking would rise from 37th-highest to 33rd-highest nationally
Bottom Line: CSI's findings suggest Initiative #195 presents a fundamental tradeoff for voters. The proposal would raise billions in new state revenue, but it could also accelerate the loss of wealth, businesses, and investment at a time when Colorado has already become less competitive nationally and is losing businesses faster than most states.
