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How Democrats are using Colorado’s special session to steer tax relief toward the working poor

Legislature’s majority pushing to redirect $185 million in state taxpayer refund money to expand the Earned Income Tax Credit
Visitors stand on the west steps of the Colorado State Capitol on April 23, 2023, in Denver. (David Zalubowski/Associated Press file)

Colorado Democrats tried tax relief the governor’s way. Now they’re doing something closer to what progressives actually want.

The Colorado House of Representatives on Saturday passed a measure largely along party lines that would double a state tax credit for low-income working families for one year, a key piece of Democrats’ plans to redistribute tax breaks from higher earners to those in financial need. The measure would redirect $185 million that would otherwise be refunded to all Coloradans under the Taxpayer’s Bill of Rights.

“It ensures that we are targeting necessary relief to the people who need it the most,” said Rep. Jenny Willford, D-Northglenn, one of the bill’s sponsors.

The proposal – and its lockstep opposition from conservatives – reflected the divergent lessons legislative Democrats and Republicans took from the failure of Proposition HH at the ballot box.

Progressives felt the sprawling property tax measure written primarily by Democratic Gov. Jared Polis offered too much tax relief to wealthy homeowners and too little assistance to low- to moderate-income Coloradans – something they’ve looked to change during the special session.

“The plight of those who cannot afford to own homes in the first place is also deserving of a special session,” said Rep. Javier Mabrey, D-Denver. He said the rent increases Coloradans face are “far more devastating” than any increase in property taxes homeowners might experience this year.

Republicans, meanwhile, took a different message from voters: Leave taxpayer refunds alone.

“The only reason we’re in this room is because the voters rejected Prop. HH,” Rep. Scott Bottoms, R-Colo. Springs, said. “They saw through the scam. They said do not touch our TABOR funds. Now this bill literally touches TABOR funds – exactly the opposite of what the voters of Colorado voted to not do.”

The measure, House Bill 1002, represents a major expansion of the Earned Income Tax Credit, a tax break worth up to thousands of dollars that 430,000 Coloradans claimed in 2022. It passed 39-20, with all 19 Republicans opposed and now heads to the state Senate for consideration.

The House also gave preliminary approval to a separate measure providing $30 million for rental assistance to households facing eviction.

The state’s EITC supplements the federal program of the same name, which primarily benefits low-income workers with children. The federal Earned Income Tax Credit climbs with a person’s earnings in order to incentivize employment – but only up to a point. Research shows it’s an effective anti-poverty tool that’s associated with better nutrition and academic achievement in low-income children.

The credit tops out at around $7,400 for families with three children making $17,000 to $28,000. The amount shrinks with higher earnings and with fewer children. No one making more than $63,400 qualifies for assistance.

Because the credit is refundable, it goes beyond reducing the taxes people owe. Families who pay less in taxes than the credit is worth receive a payment back from the state when filing their taxes.

Today, the state gives qualifying workers a refundable credit worth 25% of the federal tax credit. Under the bill, the state would provide 50% of what people receive through the federal credit in the 2023 tax year, an increase of up to $1,350. It would be the largest state-level tax credit of its kind, according to the Urban Institute, a policy research group.

Democrats argue the measure, which still needs approval in the Senate, keeps with the spirit of TABOR, swapping out one form of tax refund for another. The TABOR cap in the state constitution limits the annual growth in government revenue to the rate of inflation plus population growth. Any money collected over the cap has to be refunded to taxpayers.

“We as a Legislature have the constitutional right to reallocate TABOR surplus to where it’s needed most, and that’s what we’re doing,” said Rep. Lorena Garcia, a Denver Democrat who has criticized the Legislature’s property tax relief plans as being too geared toward the wealthy.

Democrats said the measure would reduce TABOR refund checks by about $50 per person. But when combined with another measure being debated in the special session that would give everyone equal refund checks, Coloradans making under $99,000 would still get more than they do under current law. If both measures pass, all taxpayers would receive about $800 next year, or twice that for joint filers. Currently, refund checks are distributed in six tiers according to income, with higher earners getting more money back.

Conservatives blasted the measure as unfair to middle-class workers who make too much to qualify for the EITC.

“Let’s give (Coloradans) clean tax cuts, instead of picking winners and losers – taking money from people who are by no means rich, who are also struggling to make ends meet,” Rep. Gabe Evans, R-Fort Lupton, said. “We heard a lot of conversations about ‘Oh this is being paid for by the rich.’ No, this is being paid for by everybody who is above the Earned Income Tax Credit cutoff levels.”

Nonetheless, some Republicans supported expanding the EITC as recently as this spring, when the General Assembly increased it to 38% of the federal level for the 2024 tax year. That measure was funded with $150 million from the state’s TABOR surplus.

During a Friday committee hearing, lawmakers heard from a number of working mothers who currently use the credit to buy clothes, books and food for their children. One, who gave testimony remotely, was interrupted by the babbling of a small child. Another, Alejandra Montes, relied on a Spanish translator to deliver her message.

To her, it’s the current system that’s unfair, giving refund checks to those who don’t need them.

“They already have the money to cover the needs that we can’t,” she said, through the translator.

Colorado Sun: The Colorado Sun is a reader-supported, nonpartisan news organization dedicated to covering Colorado issues. To learn more, go to coloradosun.com.

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