Study shows Colorado budget outlook worse than thought

Posted on: September 1, 2011

People of Colorado get ready to pay more taxes in the future. According to a study by the University of Denver researchers, Colorado’s long-term budget outlook is worse than first thought.  The study suggests that the state should consider tax increases because cutting alone won’t do the job.

Some of the suggestions include restoring the state’s graduated income tax, expanding sales tax to cover services and raising  property taxes to statewide minimum levels. In twelve years Colorado will generate only enough sales, income and other general purpose tax revenue to pay for the three largest programs in the general fund – public schools, health care and prisons. There would be no tax revenue for public colleges and universities, no money for state court systems, nothing for child protection services, nothing for youth corrections, nothing for state crime labs and nothing for core services of state government.

The study also said that by 2025, the state will need another $3.5 billion in tax revenue just to maintain current levels of services.  In addition, by 2025, revenue won’t even be enough to fund Medicaid, public schools and prisons.

Of course if Obamacare is implemented the problems will probably escalate even higher.

Their solution is to restore income tax and sales-tax rates to 1999 levels of 5 percent and 3 percent, respectively, which would raise an extra $900 million by 2025, only about one-fourth of what will be needed to bridge the expected gap.

The study also suggested a variety of tax increases, including a graduated income tax with a highest rate of 8 percent for earners
making $200,000 or more per year. With that tax system in place, the state could generate an estimated $3.3 billion by 2025, closing almost all the gap.

Conversely, expanding the state’s 2.9 percent sales tax, which now applies only to the sale of goods, to all services except health care
would generate an estimated $7.6 billion by 2024-25. But excluding business-to-business services and limiting the tax only to personal services — which includes everything from dry cleaning to haircuts to massages — would generate $918 million.

Another option would be to reinstate the sales tax on groceries, which have been exempt from taxation since 1979. That would fetch a projected $433.1 million by 2024-25. Meanwhile, reinstating the tax on home energy would generate $225.2 million by the same year.

The study suggested a uniform local mill levy, with exceptions for districts with greater property wealth. Districts below the
uniform levy would gradually raise them until they reached it. Or, the study said, the state could impose a statewide mill levy in conjunction with the uniform local levy or simply in place of a local levy.

The report also suggested creating a budget stabilization fund that would take any revenue above the amount by which Coloradans’ personal income grew in a year and put it away for lean times. Had such a fund been in place from the mid-1980s, it would have covered the past two recessions, the study said.

So there you have it, if Governor Hickenlooper (D) agrees to all of this, Coloradoans will be paying more to live in Colorado. How did Texas increase their revenues without increasing taxes? Maybe Colorado should take some pointers from Governor Rick Perry’s (R) economic plan. Why try to reinvent the wheel when a solid economic plan is already in place in another state?


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