OPINION: Colorado Fiscal Institute to Host ‘Federal Tax Bill Webinar’
By Carol Hedges
As we head full swing into the 2018 legislative session, the budget and economic outlook is prompting some familiar potential missteps in fiscal policy.
This year, with new revenue in the General Fund, it’s tempting for the legislature to push through more tax credits. We’ve seen this happen time and time again. But that kind of piecemeal approach does not lead to a high-quality tax system. Rather it leads to a handful of legislators picking winners and losers, and creating favored status for select people or businesses at the cost of everyone else. This approach undermines the principles of effective, efficient, and equitable tax policy.
The Colorado Fiscal Institute evaluates all tax credits using those principles on effectiveness, efficiency, and equity. And in our assessment, we ask whether a tax credit proposal has a proven, effective ability to meet a targeted goal; whether it will efficiently produce its intended outcome without significant additional cost or disruption to public investment in the economy; and whether it supports widespread prosperity for all Coloradans or advantages a limited few.
The tax credit temptation is bolstered by the initial reports Colorado could gain an additional $300 million in new revenue as a result of the federal tax cut bill. However, much uncertainty remains about that number, as CPAs and tax attorneys find ways to minimize their clients’ tax payments and in turn reduce revenue. CFI is seeing analysis that estimates new revenue closer to $30 million — and that doesn’t even take into account anticipated federal budget cuts to offset increased deficits.
CFI is hosting a webinar on the federal tax bill on Wednesday, February 7, 2018 from 10:00 – 11:30am. Please join us to learn about the specific changes to the federal tax code.
Colorado is uniquely disadvantaged to offset such federal cuts and revenue reductions due to TABOR and other constitutional constraints. So it would be wise for the legislature to proceed with caution and patience, address current unmet needs for key priorities, and strengthen our position to deal with anticipated federal cuts and weather the inevitable economic downturn that we’ll encounter at some point.
Much of the recent coverage around the federal tax bill has characterized it as a ‘windfall’ for state revenue. This belief is a byproduct of Colorado’s state tax code being coupled with the federal tax code, and the increased revenue that could result from cutting rates while also expanding the tax base. However, the final tax cut bill that passed did not actually expand the base as much as expected, leaving the gains more uncertain and far less substantial that initially anticipated.
CFI has seen estimates that Colorado stands to gain just $28 million in increased revenue.
As the Center for Budget and Policy Priorities outlines, many of the changes in the federal tax code are expected to cause taxpayers to change what they do to reduce their tax bills in ways that are now allowed under federal tax law. Some might change their employment status to independent contractors to take advantage of lower rates for those organized as “pass through” business entities. This is likely to reduce both federal and state revenues, but to what extent is not yet known.
Colorado policymakers should move forward with some caution and prioritize funding current unmet needs in education, transportation, and other key areas – while also better positioning ourselves to weather federal budget cuts and future economic downturns.
CFI is hosting a webinar on the federal tax bill on Wednesday, February 7, 2018 from 10:00 – 11:30am. Please join us to learn about the specific changes to the federal tax code and what it means for Colorado. Register online to reserve your spot.