In 2018 and 2019, Colorado voters successfully fought back two ballot measures that would have raised taxes and allowed the state to keep tax refunds. Now, tax-and-spend activists are hoping that the third time will be the charm to raise taxes on small businesses and individual taxpayers. With one of the largest tax hikes in state history on the ballot, it's more important than ever that Coloradans reject this misguided tax proposal and protect workers and entrepreneurs. Piling on more taxes would only make the economic recovery slower, put more people out of work, and shutter more small businesses.
The ballot measure in question, Proposition 118, would establish a new payroll tax of up to 1.2 percent of wages, split evenly between employers and employees once fully implemented in 2025. This tax is estimated to raise $1.34 billion in annual revenue and would be used to fund a generous government-run health insurance program and provide paid family leave. This proposal is just the latest example of the growing trend in states wishing to experiment with the prospect of universal health care. While the goal is laudable, the potential consequences of this initiative will be harmful to Colorado’s economy and detrimental to workers.
First and foremost, employees will be slapped with a tax of 0.6 percent of their wages, which will obviously lower their take-home pay. For a family with a household income of $92,000, which is Colorado’s average annual household income according to the U.S. Census Data, they can expect an added tax burden of over $1,100 each year, according to the Common Sense Institute. This amount is more than the average yearly electricity cost for the average Colorado household.
Plus, if these employees already have employee-sponsored health care, Medicare or Medicaid, they will be paying taxes for an entitlement that they cannot take advantage of.
Low income earners will be hurt more by an increase in the payroll tax than from a hike in the income tax. In a 2016 report from the Tax Policy Center, 44 percent of households did not pay federal income tax in 2015, but 60 percent of those households paid payroll tax. Many of these families are struggling to make ends meet during the pandemic and cannot afford a tax increase.
While workers would no doubt be worse off, this tax hike will have the most impact on small business owners, as they would be responsible for both of those increased liabilities under this plan, potentially increasing their payroll taxes by thousands of dollars. While businesses with fewer than 10 employees are exempted and the tax is capped at $4,400 per month, it still leaves tens of thousands of businesses responsible for the tax. Taking capital out of the lifeblood of Colorado's economy is unwise, as it makes it more difficult for existing businesses to stay afloat or expand and erects a barrier for entrepreneurs trying to enter the market.
According to the Chamber of Commerce, who opposes Proposition 118, “While there is an option for employers to opt out of the program if they already offer paid family and medical leave to their employees, the process is complex and expensive.” It makes little sense for employers and employees who either provide health care or have health care from being responsible for this tax.
Proposition 118 comes at a time when many Americans are on the move, particularly from states with relatively high tax rates to those with relatively low taxes, and to some with no income tax at all. Passing this ballot measure will make potential new residents and business owners wary of expanding their operations in Colorado.
Since most people who resettle in Colorado are from states with high costs, such as California and Illinois, it could encourage people to consider other states like Arizona or Utah instead of Colorado.
Instead of increasing tax burdens on businesses and families, voters should approve Proposition 116, which slightly reduces the income tax rate to keep more money in the pockets of hardworking taxpayers. Passing Proposition 116 delivers more than $150 million in annual tax relief to workers which could help more people afford to purchase their own health care plans.
Higher taxes will stunt economic growth, drive people out of state and harm those this measure is trying to protect. To ensure greater prosperity in The Centennial State, voters should promptly reject Proposition 118.