How the federal government shutdown and debt ceiling standoff in Washington will conclude is anyone’s guess, but one thing is certain; taxes won’t increase as part of whatever deal is worked out. So, most Americans can rest assured that their taxes won’t be going up in the near future, with the exception of folks who live in Colorado.
In just a few short weeks, Colorado voters will head to the polls to decide whether to raise the state income tax. Amendment 66, which will appear on the Nov. 5th ballot, would, if approved by voters, raise the state income tax, which currently sits at a flat 4.63 percent, to 5 percent on income below $75,000 and 5.9 on incomes above that amount.
Amendment 66 represents a 27 percent increase in the top income tax rate in Colorado and its supporters portray it as a tax increase on the wealthy. However, not only would Amendment 66 raise taxes on all workers, starting at dollar one, this tax increase would also be borne by Colorado small businesses.
According to IRS data, 417,698 small businesses in Colorado filed under the individual income tax system in 2011 (the most recent year for which data is available). However, this figure only accounts for sole proprietors. When factoring in S-Corps & partnerships that also pay the individual income tax, an upwards of approximately 550,000 Colorado small businesses would see their taxes go up and their job-creating capacity significantly reduced if Amendment 66 is approved.
In light of this, it’s not surprising that a recent NFIB poll of Colorado small businesses found that 96 percent were opposed to Amendment 66. Tax Foundation economist Liz Malm explains how Amendment 66 would raise taxes on engine of economic growth and job creation in Colorado:
“A majority of firms within Colorado are what we call "pass-throughs" because their business income tax is ‘passed through’ to individual owner, rather than paid by the actual business entity itself. According to a 2011 Ernst and Young study, 95 percent of firms in Colorado are pass-throughs. Amendment 66 would raise taxes on all of them.”
Small businesses in Colorado and across the U.S. just saw their taxes go up on January 1st of this year with the expiration of Bush era tax rates. After that and the more than 20 new or higher federal taxes signed into law by President Obama in just the last five years, the last thing Colorado employers need is another massive tax increase at the state level. Yesterday, the Denver-based Independence Institute released a report detailing how a 27 percent income tax hike would harm the Colorado economy and do nothing to improve public education.
Americans for Tax Reform urges Colorado voters to reject Amendment 66 and will be working over the next month to educate the public on the adverse consequences that would result from its passage.