Heidi Ganahl, the Republican gubernatorial nominee, is campaigning on a bold promise to eliminate Colorado’s 4.55% individual income tax, the largest source of revenue for the state’s general fund, during her first four-year term.
“I will take us to zero income tax,” she told Republican voters during a candidate forum in April.
But Ganahl, a University of Colorado regent and the only remaining Republican in statewide elected office, hasn’t explained how she plans to eliminate Colorado’s income tax without dramatically affecting the state’s budget, nearly one-third of which is made up of income tax dollars.
Ganahl would either have to slash programs and services to make up for the lost revenue – likely including education funding – or find billions of dollars elsewhere by trying to raise other taxes or enacting new fees.
“It’s doable,” she said in an interview last month without offering detailed plans on how she would do it. “It’s not going to happen overnight.”
Republicans have been slowly chipping away at Colorado’s income tax rate for years. The latest effort is a question on the November ballot that would reduce the rate to 4.4%. But conservatives have mostly avoided calls to eliminate the income tax, which has been around since 1937, because no one has presented a feasible way to do it.
“Philosophically, I agree,” said state Sen. Bob Rankin, a Carbondale Republican and the senior GOP member of the Legislature’s Joint Budget Committee, which writes the state budget. “How we get there would take some work.”
Ganahl’s Democratic opponent in November, Gov. Jared Polis, is also a proponent of eliminating Colorado’s income tax, but only if it’s eliminated in a revenue-neutral way. He has said he wants to raise taxes on other things – such as pollution – to make up the difference.
And unlike Ganahl, Polis has not made eliminating Colorado’s income tax a cornerstone of his policy platform.
“We can find another way to generate revenue that doesn’t discourage productivity and growth,” he said at a conservative conference last year.
Polis also appears to be in favor of the measure on November’s ballot seeking to reduce the income tax rate. “I’m generally supportive of those kinds of measures,” he told The Sun earlier this year.
In the 2020-21 fiscal year, the state’s individual income tax revenue was about $9.5 billion, accounting for more than 60% of total general fund revenue. The overall state budget that year, which also includes billions in federal dollars, was about $32 billion.
By comparison, sales tax revenue in the 2020-21 fiscal year, the second largest source of general fund money, was about $3.4 billion. The state sales tax rate is 2.9%.
In the 2021-22 fiscal year, which ended June 30, individual income tax revenue is expected to total $11.5 billion. In this fiscal year, which began July 1, Colorado’s individual income tax revenue is forecast to be about $11.6 billion.
Ganahl said her campaign plans to lay out the specifics of her proposal, a major part of her economic platform and her overall pitch to voters, later this summer. (“We have a policy team working on it,” Lexi Swearingen, Ganahl’s spokeswoman, said earlier this month.)
“I’m working with some experts on that,” Ganahl said of her income tax plan. “I don’t want to get ahead of us. But I wouldn’t be putting this big, bold pledge out there if I didn’t think we could get it done.”
Ganahl has also said she plans to cut Colorado’s 22-cent-per-gallon gas tax, which is one of the lowest state gas taxes in the nation, in half, which would sharply lower the funds available for the Colorado Department of Transportation
There are already plenty of skeptics.
First off, Ganahl couldn’t unilaterally eliminate Colorado’s income tax. She would likely need the help of the Legislature, and would almost certainly need the Legislature to be controlled by Republicans. The GOP hasn’t held a majority in both the House and Senate at the same time in well over a decade, and while the party is primed to make gains in the Senate this year and could even take control of the chamber, it’s improbable that they win a majority in the House.
Secondly, Ganahl would have to find a way to eliminate the income tax without breaking state government.
Michael Fields, a conservative fiscal policy activist who has been pushing for incremental income tax rate cuts, said it wouldn’t be feasible to eliminate the state’s income tax without some serious planning.
“You would definitely have to fill in a lot of that revenue with some other source,” he said.
Democrats in the Legislature and liberal fiscal policy groups are almost uniformly against the idea.
“It’s red meat for the base,” said Scott Wasserman, who leads the liberal-leaning Bell Policy Center, “but as with a lot of the things I see coming out of her campaign it’s not grounded in governing.”
Proposing cuts to the budget is fair game, he said, but Ganahl needs to explain which cuts she would make or where she would find revenue to backfill what’s lost.
“Obviously, that would have an impact on people,” he said. “It’s gotta be an informed conversation.”
The income tax rate Colordans paid used to be based on their earnings. People with higher incomes paid more while people with lower incomes paid less until 1987, when a flat, 5% rate was enacted. The rate was reduced by the Legislature about 20 years ago and then again by voters in 2020.
State Sen. Chris Hansen, a Denver Democrat who is slated to be the next chairman of the JBC, said Ganahl should explain to voters how she would fund schools if she cuts the income tax.
“It would completely gut the ability of the state to deliver education and other services,” he said. “It’s just a bit nonsensical to say ‘we’re going to cut the income tax’ without a plausible plan to replace that revenue.”
Ganahl has provided some general ideas about how to remove Colorado’s income tax: find waste in the budget (she hasn’t said where there are billions in waste now, though she has complained about the budget’s size) and bring new businesses to Colorado to create more jobs and increase existing state revenue streams by improving the economy.
In Kansas, then-Gov. Sam Brownback, a Republican, cut income taxes in 2012 with the intention of boosting the state’s economy. That didn’t work and the reductions were eventually rolled back.
Ganahl has also pointed to the fact that nine other states don’t have an income tax, including Florida and Texas.
However, Florida’s sales tax rate is more than double Colorado’s rate at 6%. Florida’s effective property tax rate is also much higher than Colorado’s, according to Rocket Mortgage, at 0.89% and 0.51% respectively.
In Texas, the state sales tax rate is 6.25%. Rocket Mortgage listed Texas’ effective property tax rate as the seventh highest in the U.S. Colorado’s rate was ranked as the third lowest.
Even if Ganahl wanted to raise the state sales tax rate in Colorado or the effective property tax rate, doing so would be immensely difficult.
Colorado’s Taxpayer’s Bill of Rights requires voter approval for all tax increases, and Coloradans have been mostly unwilling to approve state tax increases since TABOR, a constitutional amendment, was adopted in 1992.
Hansen also points out that raising the state’s sales tax rate would be regressive since doing so would force poorer Coloradans to shoulder to shoulder the same increases as their wealthier counterparts.
But Ganahl said she is undaunted by the big challenges that come with trying to eliminate the state income tax.
“I am all about rolling up my sleeves and making solutions work,” she said.
