Never has one simple fact been so clear. Businesses fund everything. When shut down to slow the spread of COVID-19, the state government went from a nearly $1 billion revenue surplus to a $3 billion shortfall. Shuttered businesses don’t collect sales taxes, and their out-of-work employees don’t pay state income taxes.
Given the sorry state of our economy and state budget, business recovery should be the Legislature’s top priority. To help them recover and survive, lawmakers should reduce the burden of overhead. Give these struggling patients oxygen and support; bill them for it later.
Instead of helping businesses recover and survive, legislators want more money from them immediately. Toward that self-destructive end, Democrats introduced House Bill 1420 on Monday and passed it out of committee Tuesday with the session ending this week.
The bill proposes eliminating and/or altering nine tax breaks to suck $1.6 billion out of the economy over the next four years. It would revoke business-saving tax breaks created by the federal CARES stimulus bill and President Donald Trump’s tax cuts of 2017 — the cuts that led to soaring employment and economic growth. The bill would slash an assortment of other tax credits.
The long-term result will be less business survival, slower economic growth, less employment growth, fewer startups and businesses relocating to Colorado. It’s a foolish attempt to tax our way to success.
The new taxes are a clear violation of the Colorado Constitution’s Taxpayer’s Bill of Rights, but the state Supreme Court reliably refuses to uphold that law. The constitution could not be more clear, forbidding “a tax policy change directly causing a net tax revenue gain” without an election.
To give the higher taxes an emotional appeal, legislators insist it is all for the children’s schools. Yet, the nonpartisan Colorado Legislative Staff reports only half of the anticipated revenue would go to schools, with the other half bolstering the general fund.
While the bill would burden employers, it doubles the earned income tax credit for low-wage earners and makes immigrants here illegally eligible by removing the need to claim it with a Social Security number.
Other elements of the bill would:
• Cap deductions for net operating losses, including those caused by coronavirus shutdowns, at $40,000.
• Eliminate deductions for capital gains on out-of-state investments, including real estate sales.
• Eliminate tax breaks on energy purchases — namely electricity, coal, gas, fuel oil, steam, coke or nuclear fuel — for business and industrial uses.
• Eliminate deductions for net operating losses established by the CARES Act.
• Eliminate the excess business loss deductions allowed by the CARES Act. An excess business loss is the amount by which the deductions attributable to a person’s businesses or trades exceed their gross income and gains attributable to those enterprises, plus $250,000.
• Eliminate tax breaks insurance companies pay on premiums they write from offices in Colorado.
• Eliminate tax exemptions for “deposit fund” annuities, structured settlements and lottery payouts.
• Eliminate the qualified business income deduction — intended to help small businesses structured as sole proprietorships, limited liability corporations and partnerships — for anyone earning more than $75,000 or $150,000 jointly. The cutoff without the bill is $157,000 (individual) and $315,000 (joint).
• Eliminate the loan interest deduction established by CARES, reducing it from 50% of adjustable taxable income to the pre-pandemic limit of 30%.
This comes as the Legislature pushes to raise “fees” and “assessments” on health insurers and hospitals to further subsidize state-subsidized health insurance plans, cover the administrative costs of a new Health Insurance Affordability Enterprise, fund the state’s new reinsurance program and other costs associated with “affordable” health care. It amounts to another tax — disguised as “fees” and “assessments” — that insurers and hospitals will pass to middle-class workers.
The slate of new business taxes comes as ballot Initiative 271 threatens to eliminate Colorado’s flat income tax and replace it with a $2 billion annual tax increase with brackets designed to penalize success. The bill comes as the Legislature threatens a paid leave initiative that would cost businesses $1.3 billion each year.
As of June, the nonpartisan Common Sense Institute identified $4.156 billion in new threats of taxes, fees and other new costs for businesses and households.
Gov. Jared Polis, a successful business entrepreneur, ran on a promise to lower taxes. In a tweet inviting Elon Musk to move the Tesla corporation to Colorado, Polis described his state as “very pro-business, low taxes. … ”
We hope Polis is polishing his veto pen in anticipation of House Bill 1420. Polis is the only possible shield for a state threatened by an avalanche of economy-crushing anti-business taxes. Only his pen can keep us “very pro-business.”
The Gazette Editorial Board