Rollie Heath’s plan to save education has garnered enough signatures to make it onto the November 1 ballot as Proposal 103. The plan behind Proposal 103 is to raise state sales and income tax back to the pre-1999 levels during the economic boom. The plan has its proponents and detractors as well as pros and cons. These factors must be weighed carefully by the voters of Colorado and explored before November 1, because the legislative body of Colorado, the General Assembly, can only lower tax levels and not raise them. An examination of Heath’s plan relies on a cost-benefit analysis, including revenue gained and lost, as well as its impact on the sluggish growth in the post-recession economy.
According to Heath’s website in support of the bill BrightColorado.com, passage of Proposal 103 would result in 3 billion dollars in additional revenue over the course of five years, all of it earmarked for education. This revenue would come from an increase of the state income tax on individuals, corporations, and estates to 5%, up .37% from the current 4.63%. It would also increase the state sales tax to 3% from 2.9%. There is a chart on BrightColorado outlining exactly how much revenue this is expected to generate from each sector of the economy. Individual taxpayers will bear the brunt of this increase in revenue, providing 196 million dollars in the remaining 2011-2012 fiscal year, and approximately 420 million dollars every year thereafter. The effect on the median income level of 55,700 dollars would be a tax increase between 150 and 200 dollars a year, depending on deductions and other factors. Adding in the additional revenue from corporate and estate tax and sales tax, the totals for the remaining fiscal year are 250 million dollars and for each additional fiscal year a total of 536 million dollars. On the surface, it looks like a bright investment in Colorado’s future. However, there are some problems involved with Proposition 103.
According to an economic report by Eric Fruits and Pozdena published at the Common Sense Policy Roundtable, there are some economic issues involved with the passage of Proposal 103, the largest being a tax increase during a time of sluggish growth and unemployment and what it means to that growth. Eric Fruits’ study entitled, “The Effects on Employment and Migration” deals with the effects of Heath’s plan on employment and migration to the state of Colorado and highlights some issues. If his figures are correct, the tax increase, though apparently minimal, would lead to a slowdown in job growth, resulting in the loss of a potential 30,500 jobs total. Furthermore, depending on whether those jobs are compounded yearly if each year a job is not created counts as a job lost over the five year period that Heath’s plan covers. Next is the lost revenue.
The tax increase, while bringing in a revenue of 536 million dollars also results in a loss of 217 million dollars from loss of migrants. It is estimated in Fruits’ report that the tax increase would result in a net migration loss of 3,610 possible taxpayers, be it people who move from Colorado or people who choose not to move to Colorado as a result of the tax increase. While 3,610 taxpayers seems small, the net revenue lost amounts to approximately 217 million dollars. Because the revenue gained from Heath’s proposal is earmarked for education spending only, the 217 million dollars lost would have to come from other areas of the economy, offsetting the gain from the tax increase.
Finally, the chances of an income tax increase being passed by the general public remains dubious at best. While Proposition 103 gained enough signatures as Initiative 25 to make the ballot on November 1, the number of signatures gained account for less than 1 in 30 voters, and Heath has recently admitted in an article published in the Durango Herald that at least 2/3 of signees were paid for their time and signature. The question that remains to be seen on election day is whether many of these signees will vote for the proposal where they’ll essentially being asked to sacrifice money, rather than being paid to sign something that is non-binding. In the end, the decision on Proposal 103 and whether it’s a viable plan to save Colorado public education is something decided by the voters on November 1.