Colorado governor Jared Polis (Photo by Michael Ciaglo/Getty Images)
Getty ImagesIn addition to the off-year elections to be decided this November in Virginia, Kentucky, Louisiana, and Mississippi, a number of ballot initiatives will be voted on in other states. Perhaps the most consequential measure appearing on the November 2023 ballot, at least when it comes to fiscal policy, is found in Colorado, where voters will be asked whether they want to weaken the nation’s strongest tax and expenditure limit in exchange for property tax relief.
Proposition HH, which was referred to the November ballot by Colorado lawmakers with the support of Governor Jared Polis (D), would weaken the state’s Taxpayer’s Bill of Rights (TABOR) by permitting the state to keep surplus revenue that would otherwise have to be returned to taxpayers. TABOR, a constitutional amendment approved by voters in 1992, subjects all state tax hikes to voter approval and caps the rise in state spending at the rate of population growth plus inflation. Tax collections exceeding the TABOR limit must be refunded to taxpayers.
TABOR has triggered multiple taxpayer refunds in recent years, to the chagrin of Democrats who run the state legislature in Denver. Proposition HH, if approved by voters, would prevent many such refunds in the future.
Colorado legislators voted in May to refer the measure to the November ballot. Rather than sell HH as an initiative to end TABOR refunds moving forward so that government, not taxpayers, has more money to spend, Proposition HH backers have instead branded it as a property tax relief measure.
Proposition HH would reduce property tax rates this year relative to current law, but would increase the tax burden on net, which is why it requires voter sign off. Opponents of HH have been pointing out that the measure would translate into forfeiture of TABOR refunds and ultimately lead to a much higher overall tax state burden in the future.
Governor Polis has been commended across the political and ideological spectrum for his past statements in support of income tax reduction and even in favor of total phaseout. Critics of HH, however, say Polis’s support for the measure proves his income tax cutting rhetoric to be hollow.
“In 2020 and 2022, Polis praised two income tax reduction initiatives proposed by the libertarian-leaning Independence Institute,” explains Ben Murrey, director of the Independence Institute’s Fiscal Policy Center. “Both measures won with large margins in the now deep blue state. The rate decreases came as part of an ongoing strategy, also endorsed by the governor, to buy down the income tax using state surpluses.”
In making the case for Proposition HH, however, critics say Polis has contradicted his previous explanation for how he would facilitate a drawdown in the state income tax rate. Governor Polis concedes Proposition HH will diminish TABOR refunds, but hasn’t addressed the fact that enactment of HH would make it harder to use future surpluses to drive down the income tax rate, which is Polis’s stated plan.
“The Wall Street Journal called Polis’s proposal ‘Colorado’s back-door tax hike’—but it’s more than that,” Murrey adds. “If Proposition HH wins at the ballot this November, it would also prevent the state from buying down its income tax as the governor previously proposed.”
Thanks to TABOR, when Colorado reduced its flat income tax rate from 4.63% in 2019 to 4.4% in 2022, it had no impact on the state budget. It merely reduced the over-collection owed back to taxpayers. Despite recent rate reductions, the state collected $3.5 billion in surplus revenue last year, resulting in $750 refunds for every taxpayer. This year refunds are expected to exceed $800 per taxpayer.
“Barring economic catastrophe, state economists expect refunds to continue indefinitely,” Murrey notes. “Based on their forecasts, current surpluses could buy down Colorado’s income tax rate to 4.35% without ever impacting the state budget.”
Murrey points out that Proposition HH would raise the TABOR spending limit by a cumulative $12.5 billion over the first decade, around $65 billion over two decades, and increasingly more thereafter. “This would increase state spending by up to that amount while decreasing the surplus and thus the amount of money returned to taxpayers,” he says, adding that this change “would constitute the largest effective tax increase in state history.”
Back in January, Governor Polis told Coloradans he wants to use state surpluses to continue reducing the income tax rate. Now, with Proposition HH, he is instead trying to keep and spend surplus money. Many believe Polis is too smart not to see the contradiction. Whether most of the press corps and voters notice it remains to be seen. Governor Polis, state legislative leaders, and many local officials are hoping their constituents won’t notice that the property tax relief offered by Proposition HH pales in comparison to the increase in the overall state tax burden that passage of HH would beget. The effectiveness of this strategy will be known by the evening of November 7.