Business groups seek smarter spending after tax hike

Denver Metro Chamber of Commerce President J.J. Ament and other business leaders are preparing for higher state income taxes following the passage of Amendment 87. The group argues that the state must spend the additional revenue efficiently to remain competitive with neighboring regions. Ament stated that Colorado cannot make the state more affordable by making government services more expensive.

The amendment replaces the state's flat income tax with a six-tier system. Individuals and businesses earning over $500,000 annually will pay an estimated $2.7 billion more in state taxes each year. After accounting for tax breaks for lower earners, the state expects to generate about $2 billion in net new revenue annually. Leaders say this money should go toward repairing roads, lowering energy costs, and improving broadband connectivity.

Business executives warn that the tax increase may hurt Colorado's standing in national rankings. The Tax Foundation's State Tax Competitiveness Index shows the state's business tax climate has dropped from ninth most favorable in 2003 to 33rd. Michael Smith, state director for the National Federation of Independent Business, noted that the top rate will rise from 4.4% to 8.4%. He warned that this change could force small business owners to raise prices or cut employee hours.

Recent economic data supports these concerns. The state lost 4,898 jobs last year, a decline of 0.14% compared to a national growth rate of 0.5%. This loss occurred without a recession, according to economist Greg Totten. Totten noted that net domestic migration was negative, meaning Colorado lost more residents to other states than it gained. High housing costs and a lack of job opportunities likely drove this trend.

Colorado competes directly with states like Utah, Texas, and Arizona for business relocations. Ament pointed out that eight of the 11 states where Colorado competes most closely for new jobs have no state income tax. Site selectors who advise companies on where to move have warned that the state can no longer rely solely on its geographic appeal. The state must offer real financial value to attract investment.

Loren Furman, president of the Colorado Chamber of Commerce, said the new tax revenue should stop the legislature from adding new fees on employers. Since federal pandemic relief funds ended, the state has raised costs for wildfire mitigation, health insurance programs, and environmental permits. Furman expects the new taxes to fund existing programs, preventing further cost increases for businesses.

The shift marks a return to a graduated tax system after 39 years. Colorado switched to a flat tax in 1987, the first state to do so. At that time, the rate was 5%. It has since been lowered to 4.4%. Jon Caldara of the Independence Institute, which helped lead the original flat tax push, called the current change a shame. He noted that the flat system helped drive faster job growth in the late 20th century.