Lawmakers Consider New Tax Credit in Colorado Using TABOR Money
Colorado taxpayers could get some extra money in the future if lawmakers succeed in their plan to direct more TABOR refunds to low-income families. Lawmakers want to use TABOR money to give taxpayers a new tax credit from Colorado. However, with less than a week left until the regular session of the National Assembly, time is running out.
Colorado’s new tax credit: What lawmakers plan to do
Colorado’s spending plan, including funding for K-12 education, is nearly complete and is now on its way to the governor. In the final weeks of the legislative session, lawmakers are focusing on sending new tax credits to Colorado using Taxpayer Bill of Rights (TABOR) funds.
Under TABOR, the state must return any surplus state revenue to taxpayers, but it is up to lawmakers to decide how TABOR funds will be distributed. Both Democrats and Republicans want Coloradans to receive more TABOR funds and are considering a series of income tax credits to do so.
For example, one measure lawmakers are considering is expanding the earned income tax credit to 50 percent of the federal earned income tax credit. Another bill calls for a family affordability tax credit. Both measures aim to support the state’s low-income families and cut child poverty in half.
Lawmakers are also considering a new TABOR refund mechanism bill, which is estimated to provide approximately $450 million in TABOR funds to taxpayers in the form of income tax relief.
While many favor using TABOR funds to implement new tax credits in Colorado, some oppose it, arguing that the state should keep the additional funds for economic downturns, a time when residents need the money most.
The TABOR rebate mechanism proposal was unanimously approved at its first committee meeting Thursday. Earlier this week, the House approved several tax credits that are now awaiting further action in the Senate.
The error will cause your TABOR funds to increase.
A statewide audit in February revealed $67 million in mistakes in TABOR refunds, and on April 25, the Joint Budget Committee confirmed the audit’s findings. The TABOR refund error is tied to Health Insurance Affordability (HIA) corporations, which make health insurance affordable across the state by taxing health insurance premiums.
Since 2020, the State Controller’s Office has treated insurance premium taxes as exempt from TABOR, but the Auditor and Attorney General have ruled that premium taxes are part of state TABOR revenue.
Therefore, this decision increases the General Fund obligation for TABOR refunds while reducing General Fund availability for other purposes.
The Joint Budget Committee now recommends eliminating premium subsidies for HIA beginning in fiscal year 2023-24 and temporarily reducing General Fund reserve requirements by $31.5 million in fiscal year 2024-25.
