A proposed constitutional amendment to replace Colorado’s flat income-tax rate with a graduated income-tax system qualified for the November ballot on Tuesday, setting up a statewide showdown between two tax measures seeking decidedly different outcomes.
With the Colorado Secretary of State’s Office’s announcement that Initiative 195 backers had gathered enough signatures to put their proposal before the electorate, that means that both the progressive income-tax proposal and Initiative 232 will go before voters. Initiative 232, which received official clearance from the Secretary of State’s Office on Aug. 20, would bar Colorado corporate or individual income-tax rates from exceeding the existing 4.4% level.
Thus, Coloradans, who have shown increasing inclinations over the past decade to back Democratic candidates but also to back income-tax cuts pushed by Republican-leaning groups, will have a chance to choose what kind of income-tax system they want. If voters somehow pass both ballot measures, that likely would launch a complex series of legal maneuvers to determine which system would go into place.
While Initiative 232 is relatively simple, seeking to ensure no business or resident pays a higher income-tax rate than that which all are paying currently, Initiative 195 would produce more seismic changes.
A graduated income-tax system
It would reduce the tax rate paid by business and individuals making $25,000 or less annually (to 3.7%) or $25,001 to $100,000 each year (to 4.2%), keep it unchanged for earnings between $101,000 and $500,000 and raise it for those making more. Earnings of $501,000 to $750,000 would be taxed at 7.4%, those between $750,001 and $1,000,000 would have a rate of 7.9% and earnings above $1 million annually would top out at 8.4%.
The supporting Protect Colorado’s Future coalition — made up largely of education groups, conservation groups and progressive policy organizations like the Bell Policy Center — argues that the vast majority of Coloradans will pay less taxes while high-earning individuals and businesses will have to pay more. The nonpartisan Legislative Council estimates the new structure will increase tax revenues by $2 billion in its first full year and by more in subsequent years, with the new money required to go to K-12 education, healthcare and early childhood care and education.
“Young people in Colorado are facing increasing rent costs, stagnating wages and the programs we rely on being cut, all while the wealthiest keep getting wealthier,” said Christina Soliz, coalition co-chair and executive director of New Era Colorado, in a news release. “Initiative 195 qualifying for the ballot means voters have the opportunity to create a fairer tax code that rebalances the scales. This is our chance to build a state where the wealthy pay what they owe and where young people can actually see a future here.”
Business community leery of income-tax changes
However, business leaders have warned that changing Colorado’s low and universal income-tax rate would remove one of its primary advantages in competing for jobs at a time when its regulatory burden and cost of living rank among the highest in the country. An analysis from the business-focused Common Sense Institute warned that Colorado is likely to lose 14 significantly sized businesses annually and $200 million in corporate profits due to companies migrating to other states if this measure passes.
“Colorado’s current economic and demographic trends are an important context to the ballot initiative,” said Ross Kaminsky, CSI’s Mike E. Leprino Free Enterprise Fellow. “In an environment in which Colorado is losing competitive edge to other states, voters should carefully consider the impact of adjusting tax rates.”
Initiative 195 would reduce annual income-tax bills for 97% of individuals and 95% of businesses in the state, according to Protect Colorado’s Future. Those breaks would range from an average of $39 for folks earning between $15,000 and $30,000 to about $200 for a person or business earning $70,000 to a high of $325 for companies and individuals making between $200,000 and $500,000, according to the Legislative Council.
But businesses and individuals making $1 million or more would see tax bills rise by an average of $26,085, according to the Legislative Council, and the more money companies and people make, the more extra they would be paying. For example, a business or resident with $2 million in annual income would pay $55,925 more in taxes, it estimated.
More money for schools, Initiative 195 supporters say
Supporters of the initiative, who massaged the language of the ballot measure several times before getting approval from the state Title-Setting Board, say that a tax system in which people and companies that make more money pay higher rates is a fairer system. The extra money that they pay will fund needed public services that have been squeezed by budget shortfalls in recent years, as the proposal will end the requirement in the Taxpayer’s Bill of Rights to tax every person and company at the same rate.
“Initiative 195 qualifying for the ballot means Coloradans will have the chance to vote their values and build a tax system where everyone pays their fair share and our neighborhood schools finally get what they need to do right by our kids,” said Lisa Weil, executive director of coalition member Great Education Colorado.
Advance Colorado, the conservative policy group that gathered signatures for Initiative 232, disagrees. Initiative 195 represents the largest tax hike in state history while exempting the newly raised funds from TABOR revenue limits, allowing the government to grow its budget substantially after that budget already expanded 53% in the past eight years, policy analyst Elizabeth Caven wrote in a paper for the organization earlier this year. That’s a primary reason why the group pushed back with its plan for an income-tax-rate cap.
Part of a packed November ballot
“Data from both national trends and Colorado’s own migration patterns show that high-income households are the most mobile, and when they leave, the state loses a substantial portion of its revenue,” Caven wrote. “Once this happens, the heavy tax burden imposed by a progressive system would fall on middle-class families, burdening them even more in a state that already struggles with affordability.”
Initiative 195 is a constitutional amendment, meaning that it must receive 55% approval to pass. Initiative 232 faces a slightly easier road as a statutory change, needing only a majority of votes to become law.
The two measures will be part of a crowded November ballot that includes a U.S. Senate race, a gubernatorial contest, one of the most closely watched U.S. House matchups in the country and Democrats’ attempt to win a supermajority in both the state House and Senate. It also will feature several high-interest ballot measures, though advocates for a road-funding increase officially withdrew their ballot measure on Tuesday after reaching an agreement for bills to be considered in the 2027 legislative session.