In Fiscal Year (FY) 2016, Colorado collected $25.4 billion in state and local taxes—or $4,590 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average Colorado taxpayer can afford this level of taxation?
To better answer this question, this analysis will calculate Colorado’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
Fortunately for taxpayers, as shown in Chart 1, Colorado’s state and local tax burden (tax collections divided by private sector personal income) was the sixth lowest in the nation for FY 2016 at 11.8 percent—or -17 percent below the national average of 14.3 percent.
#Colorado state and local #taxburden in FY 2016 was the 6th lowest in the nation at 11.8%— -17% below US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #COpolitics #COleg #COsen #COgov #PolicyData (click to tweet)
As shown in Chart 2, Colorado’s tax burden has increased over time by only 3 percent to 11.8 percent in FY 2016 from 11.5 percent in FY 1950.
As shown in Chart 3, Colorado’s 11.8 percent tax burden is greater than these combined industries: manufacturing (5.8 percent), retail trade (5.3 percent), and utilities (0.6 percent).
Colorado’s low state and local tax burden can, obviously, be attributed to the trail-blazing Taxpayer Bill of Rights (TABOR). A comprehensive study published by the Independence Institute showcases how TABOR has held the line against higher taxes (pdf):
“In the decade before the enactment of The Taxpayer’s Bill of Rights [1983-1992], Colorado’s population and inflation grew by a combined 50%. Yet state government revenues grew by 133%, and state government spending by 119%. In other words, government taxes and spending were growing at over twice the rate of the population and the price level increase.”
“During the first decade of TABOR (“Decade-1”) [1993 – 2002], population-plus-inflation grew 71%. In this same period, government revenue rose 77%, and spending rose 85%. Thus, TABOR achieved its objective of bringing tax growth and spending growth closer in line with the economic environment. Of course TABOR allows extra taxes and spending whenever the voters consent . . .”
“During the second decade of TABOR (“Decade-2”) from 2003 to 2012, Colorado voters were asked to approve the largest tax increase in Colorado history, via Referendum C, a so-called “Five-year TABOR timeout.” At the same time, voters were asked to approve major new state government borrowing, in anticipation of the extra tax revenue. This was Referendum D. The voters rejected Referendum D (borrowing) and approved Referendum C (spending).”
“Thus, in Decade 2, population-plus inflation rose 37%, tax revenues rose 83%, and spending rose 76%. Figure 1 shows these results. According to the state’s 2014 Comprehensive Annual Financial Report, Referendum C resulted in the State gaining $3.6 billion in extra revenue during the five-year TABOR “time-out.” When that “time-out” technically ended, Referendum C reset the baseline for government revenues (the Excess State Revenue Cap) at a permanently higher level. As result, taxes were $6.2 billion higher from Fiscal Year 2010-11 through 2013-14. Thus, the state government had $9.8 billion more to spend as it chose, and taxpayers had $9.8 billion less to spend as they chose. On a per-person basis, this was a $1,909 tax increase. Or $7,637 for a family of four.”
“As will be detailed below, Colorado’s economy performed significantly better than the national economy during TABOR Decade-1. This was not true for the preTABOR decade, nor was it true during TABOR Decade-2, the decade of the largest tax increase in Colorado history.”
One can clearly see this narrative in Chart 2 as Colorado’s tax burden steeply rises in 1980’s, then falls in the 1990’s, then steeply rises again in the 2000’s, and then starts to fall in 2010’s. It remains to be seen, however, if the attacks on TABOR have permanent weakened it or if TABOR will once again continue providing a needed brake on Colorado’s tax burden.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Colorado—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The twenty Colorado counties with the highest local government tax burden include:
The twenty Colorado counties with the lowest local government tax burden include:
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.