Colorado taxpayers may get some extra money going forward provided lawmakers succeed in their plans to redirect more TABOR refunds to lower-income families. Lawmakers want to give taxpayers new tax credits from Colorado using TABOR money. However, the time is running out with less than a week left in the regular legislative session.
New tax credits from Colorado: what lawmakers are planning to do
Colorado’s spending plan is almost completed, including funding for K-12 education, and now the plan is on its way to the governor. In the final weeks of the legislative session, lawmakers are focusing on sending new tax credits from Colorado using TABOR (Taxpayer’s Bill of Rights) money.
Under TABOR, the state is required to return surplus state revenue to the taxpayers, but it is up to the lawmakers to decide how the TABOR money will be distributed. Both Democrats and Republicans want Coloradans to get more TABOR money and, thus, are considering a series of income tax credits.
For instance, one of the measures that lawmakers are considering is expanding the earned income tax credit to 50% of the federal earned income tax credit. Another measure calls for creating a family affordability tax credit. Both of these measures aim to help low-income families in the state and cut child poverty in half.
Lawmakers are also considering a new TABOR refund mechanism bill estimated to give taxpayers about $450 million of TABOR money in the form of an income tax reduction.
Though many favor implementing new tax credits from Colorado using TABOR money, some oppose it, arguing that the state should keep the extra money for economic downturns, i.e., the time residents need the money most.
The TABOR rebate mechanism proposal was unanimously approved by the first committee on Thursday. Earlier this week, the House approved several tax credits that are now awaiting further action in the Senate.
Error boosts TABOR funds
In February, a statewide audit revealed a $67 million mistake in TABOR refunds, and on April 25, the Joint Budget Committee confirmed the audit findings. The error with the TABOR refunds is related to the Health Insurance Affordability (HIA) Enterprise, which charges tax on health insurance premiums, resulting in cheaper health insurance across the state.
Since 2020, the Office of the State Controller treated the insurance premium taxes as exempt from TABOR, but the audit and the attorney general ruled that the insurance premium taxes are part of the state TABOR revenue.
So, the decision boosts the General Fund obligation for a TABOR refund and at the same time, reduces the General Fund available for other purposes.
The Joint Budget Committee now recommends eliminating the insurance premium subsidy to HIA starting in the fiscal year 2023-24, and temporarily reducing the General Fund reserve requirement by $31.5 million in the fiscal year 2024-25.
