Guest Commentary: The proposed state income tax increase

Guest Commentary: The proposed state income tax increase
Posted: 03/24/2011 1:00 AM


In the world of politics bad ideas never die, they just keep coming back in new and more obnoxious forms. On Feb. 5, The Denver Post reported that something called the Colorado Center on Law and Policy is planning to put a proposal on the state ballot that would bring back the graduated income tax.

The graduated income tax is an income tax that increases in percentage with an individual's income. Colorado currently has a flat income tax rate of around 4.63 percent that everybody pays. The Center wants to replace it with a tax that would rise to about 9 percent as incomes increase. The idea behind this is to raise enough revenue to balance the state budget.

Colorado is facing a serious budget shortfall because of insufficient tax revenues.

That idea is quite dubious because news stories indicate that other states with a high income tax like California and Illinois face serious budget deficits. Texas which has no state income but relies on sales tax does not.

The Center itself estimates that its increase would only raise about $1.5 billion a year. This doesn't seem like enough to solve Colorado's budget woes. If more income isn't the agenda, here what is?

A quick glance at the proposals the Center's made quickly shows their true agenda. Three of six proposals the center has made will make the earned income tax credit for the poor permanent. The Earned Income Tax Credit, AKA EIC, is a payment the state gives to poor people based on a percentage of their income tax.

The Earned Income tax credit does help the poor but it's an even bigger boon to tax preparers. To get the earned income tax credit, most poor people go to tax preparers like H&R Block, Jackson Hewitt, Liberty and Instant tax. These companies make big bucks by charging a fee on tax preparation.

They make even bigger bucks by giving the poor and working classes high interest refund anticipation loans. Preserving the state income tax and the state EIC, means more money for tax preparation outfits.

If that wasn't bad enough increasing the state income tax means more money for accountants, lawyers and other tax professionals who work with the rich and upper classes. Under our current state system many affluent people and corporations simply pay the income tax as it is cheaper than paying a preparer. If it goes up there will be more work and more money for tax preparers.

Indeed, the state is likely to get less money because more people with money will be using tax preparers who will help them get more exemptions and pay less tax. Anybody who knows anything about our tax system should be able to see this. Yet the Center doesn't or more likely ignores it.

Call me cynical but this whole initiative looks like a scheme by tax preparers to increase their business not a revenue increase. This can be born out because the center's proposals didn't include a measure to extend the state sales tax to services which would actually raise revenue for the state.

A services tax would undoubtedly include tax preparation and related services such as lawyers and accountants fees. So the Center is preserving a tax break for tax preparers and other affluent professionals in its "Fair Income Tax System Proposal."

When quizzed about this by Denver Post reporter Tim Hoover, Center propagandist Carol Hedges said a sales tax on services is "regressive" and hurts the poor. How does such a tax hurt the poor? Do the poor hire lawyers, accountants, and other service providing professionals?

Why is an organization that claims to be fighting for the working poor so anxious to help an obnoxious tax break that helps the affluent? Could its real agenda be boosting tax preparers" bottom lines?

Fortunately the people of Colorado are not going to go for this nonsense. I predict that the Fair Income Tax System proposal will be defeated by a huge margin. The voters unlike certain reporters at the Denver Post and certain Post columnists are not so easily deceived. Unlike self proclaimed journalists the working people of Colorado know that an income tax is a tax on them and a welfare system for accountants and tax preparers.

If the Center really wanted to be fair to Colorado's working people it would put a proposal abolishing our state's property tax system which is unfair and does hurt the working people on the ballot. Abolishing property tax and going to an across the board state sales tax on goods and services with no exemptions (like they have in Texas or the Canadian province of Ontario, which recently got rid of income taxes for most of its citizens) would be a truly fair state tax system.

Unfortunately, the centers and institutes on the right and left that push these proposals won't go for that because under an across the board sales tax, the special interests who fund these propaganda outlets would have to pay a fair share of the tax burden.