Democratic lawmakers want to tap into hundreds of millions of dollars by eliminating tax breaks that disproportionately help Colorado’s wealthy. But they may have to dare Gov. Jared Polis to veto their plan first.
On Monday evening, Democrats introduced a House bill that its authors estimate would bring in $278 million in annual revenue. The bill is intended to help a state budget that, thanks to coronavirus-related economic wreckage, needs every penny it can find.
They’re not expected to garner much Republican support, but that won’t matter; Democrats own majorities in both chambers of the statehouse and are widely supportive of the bill. Polis, a Democrat, also supports eliminating certain tax credits that benefit the wealthy. The bill proposes to undo breaks created by the Trump tax cuts of 2017 and by this year’s CARES Act. The bill would also cap net operating loss deductions for businesses, eliminate a capital gains provision that benefits the wealthiest 1% of filers, and remove a tax exemption for energy and industrial manufacturing companies.
But Polis wants an across-the-board state income tax cut to be included in the bill, and with that position he is on an island. He has been pushing for the cut in behind-the-scenes negotiations with lawmakers, but there may not be a single Democrat at the Capitol who agrees with him there. That was true before the coronavirus struck, and it’s especially true now that the budget is in tatters.
This sets up a showdown: Polis has been an extremely hands-on governor, and since taking office early last year he has, on numerous occasions, urged lawmakers to write bills in his vision. He consistently wins those fights, and can claim credit for personally altering or killing a number of major bills, concerning everything from immigrant protections to vaccine exemptions to paid family and medical leave.
It’s a source of running and frequently immense frustration among Democrats, many of whom feel the governor should let legislators legislate.
“We have had conversations with the governor’s office, and I want to continue having productive conversations with the governor’s office. I want to honor that space,” Rep. Matt Gray, D-Broomfield, said regarding the tax bill. “But he’s made very public comments about what he wants to do. We know what we want to do. And the bill, as introduced right now, does not include some of the things he’s talked about.”
That’s putting it mildly, according to several sources close to negotiations. In simple terms, the tax cut Polis desires is so fundamentally inconsistent with the Democratic agenda that the lawmakers backing the bill are prepared to reject the governor’s request and try to pass the bill without him.
“We don’t think that millionaires need tax cuts. That’s why we’re doing what we’re doing with this bill,” said Gray’s House co-sponsor, Rep. Emily Sirota, D-Denver.
This would be a departure from how the Polis administration and the legislative branch have interacted to date. Lawmakers have a long recent record of standing down from Polis.
Shelby Wieman, a spokeswoman for the governor, provided The Post with a statement that read in part: “Governor Polis is incredibly excited about a tax reform package that can reduce the need for damaging cuts to our schools, reduce the income tax, and get resources into the hands of those who need it the most through the Earned Income Tax Credit. Unfortunately, good faith negotiations with the legislature have not yet produced a product that the Governor supports.”
Colorado’s income tax is set at a flat rate of 4.63%, which means that everyone, rich or poor, pays at the same level. There’s a proposed 2020 ballot measure, Initiative 271, that proposes to install a progressive income tax schedule for Colorado, in which people making under $250,000 a year would get a cut, and those above that level would pay higher rates. The measure, which has not yet qualified for the ballot, would generate an estimated $2 billion annually.
There’s a competing ballot proposal, Initiative 306, that is backed by conservatives and seeks simply to cut the income tax rate to 4.55% for everyone.
Polis has declined to support either initiative publicly, putting him at odds with elected Democrats who believe the state income tax code must be overhauled in a way that forces wealthy people to pay a higher rate. Polis and Republicans fully agree on the need to cut the income tax across the board, but unlike the governor, Republicans haven’t shown any interest in pairing such action with elimination of tax breaks.
His insistence on an across-the-board cut confounds his fellow Democrats, many of whom privately speculate that he wants to be able to campaign in the future on having cut taxes. Others believe that Polis really holds some fiscally conservative beliefs and is out of step with his party because of ideological reasons, not political ones.
“From the beginning of his administration, Governor Polis has called to eliminate special interest tax breaks and pass the savings along to all Coloradans,” Wieman said in her statement. “This year has been especially hard on families and businesses and the governor is calling on the legislature to pass broad based tax relief for every individual and every small business by lowering the state income tax rate, and paying for it by repealing special interest tax breaks.”
There are roughly 200 different tax credits, exemptions and deductions in Colorado, but Polis and the sponsors — Gray and Sirota are joined in the Senate by Democrats Julie Gonzales and Dominick Moreno — generally refer to the breaks that would be ended with this bill as loopholes. That’s not how Republicans or the business community see them, underscoring that one person’s loophole is another person’s tool to support particular business or individual actions.
In an email blast Friday, Denver Metro Chamber of Commerce CEO Kelly Brough sounded the alarm: “(T)ruly with no discussion or outreach, we were shocked to learn of an intention to roll back tax relief that has been critical for many of our small and medium-sized businesses by eliminating a number of tax cuts in the CARES Act and the Tax Cuts and Jobs Act of 2017. … What we know is that Colorado’s legislature wants to roll back recent tax relief intended to help small businesses and their employees during this trying time. It’s all simply too much.”