Tough choices and trade offs are a common part of everyday life. Now Colorado voters are faced with a tough choice and trade off.
In the case of a ballot initiative being proposed by State Senator Rollie Heath, the implied choice for Coloradans is funding a budget shortfall for education with higher taxes. The trade off, according to a study commissioned by Common Sense Policy Roundtable is that higher Colorado taxes will cost approximately 119,700 jobs over the five years of this tax increase. And as history suggests, there is no guarantee of education funding.
Senator Heath launched his campaign earlier this month aimed at raising the individual and corporate income tax rate to 5 percent and increasing the state sales tax rate to 3 percent. Senator Heath’s initiative, which would sunset after 5 years, is said to be an effort to offset reductions in education spending by the state.
On the surface, it is easy to see the appeal of Senator Heath’s initiative. It is a relatively small increase, it is set to expire in just 5 years, everybody participates, and the promise is that it will be spent on education. But, this promise to spend the tax increase on education is easily broken by the next group of elected legislators.
Today, we have an issue. In this past legislative session, the General Assembly cut $160 Million from education spending, a number far below Governor Hickenlooper’s original proposal to reduce education spending by $332 million. Colorado’s elected leaders, like many families and businesses across our state, were forced to make a number of tough choices in order to close a budget shortfall that was just shy of a billion dollars and meet the state’s constitutional obligation to have a balanced budget.
These tough choices were in large part a result of the worst economic conditions since the Great Depression. A recent article from the Kansas City Federal Reserve, “The Recession’s Toll on Colorado a Lost Decade,” points out that Colorado lost more than 150,000 wage and salary jobs and saw our unemployment rate jump north of 9 percent — a rate higher than the national average. Fewer jobs means less money being earned, spent and invested into our economy – it also means less tax revenue for government functions at all levels.
As members of the Common Sense Policy Roundtable, we focus on the issues of jobs and economic growth. We look at each proposed legislative or citizen led initiative through the prism of how these actions will impact Colorado’s economic well being. Earlier this year, when the Fiscal Policy Institute, and later Senator Heath, began to have conversations about possible ballot initiatives, we commissioned an economic study for Colorado. The study was conducted by Dr. Eric Fruits of Economics International; the goal was to determine the economic impacts of the proposed measures.
The study’s results indicated that Senator Heath’s tax increases would in fact have a damaging impact on employment in Colorado and slow the state’s recovery from the recent recession. According to the study, Senator Heath’s measures would reduce employment by 5,500 in the first full year. The reduction in growth rates over time indicate that if the initiative passed it would reduce employment by 30,500 by 2017, with a cumulative impact of 119,700 fewer working Coloradans. Included in the study numbers regarding the negative effect on employment, the study suggests that Senator Heath’s initiative would substantially reduce by 3,610 per year the migration to Colorado of tax-payers who have a choice to select the most tax-favorable state.
Senator Heath has pointed out that in addition to a favorable tax climate, businesses also value an educated workforce. He is absolutely correct! Colorado competes in a global economy where businesses have the opportunity to choose where to operate, and chief among their wish list is an environment that offers a tax and regulatory structure that allows their business to thrive as well as a strong education system.
It is also to important to note, that while there is no doubt that Senator Heath wants the newly generated revenue to go to education, there is no way to guarantee that it will in fact go there. As the Pueblo Chieftain recently put it, “We’ve heard that song and dance before.” The reality is that the composition of the legislature changes every two years, along with its priorities. Future legislatures can alter this statute with a simple majority vote – not to mention the fact that all money in the state’s General Fund is fungible.
Our goal for the commissioned study was not to say we don’t need more funding for education. Our goal was to determine what, if any, impact a $3 billion tax increase over 5 years would have on Colorado’s ability to escape the economic downturn. Ultimately we wanted to give voters a complete picture of the potential impacts of the proposed ballot measures. You might say this is an effort to avoid “unintended consequences.” The results of our study suggest that there would be job loss and slowing of our economic recovery, if the tax increase initiative passed.
Knowing this, the voters of the Centennial state have a tough choice. Does the promise of restoring education funding outweigh the risk of losing Colorado jobs and slowing economic growth?
Earl Wright, Buz Koelbel, and Terry Stevinson are members of the Commons Sense Policy Roundtable Board of Directors. EDITOR’S NOTE: This is an online-only column and has not been edited.
