New Colorado tax credit could lift 50,000 children out of poverty and is the latest to tap into TABOR surplus – Greeley Tribune

New Colorado tax credit could lift 50,000 children out of poverty and is the latest to tap into TABOR surplus – Greeley Tribune

Gov. Jared Polis addresses the crowd before signing a new child tax credit bill as graduating preschoolers play at Denver KinderCare in Denver on Friday, May 31, 2024. (Photo by Zachary Spindler -Krage/The Denver Post)

Boasting that child poverty in Colorado would soon be cut nearly in half, Gov. Jared Polis on Friday signed into law a big new tax credit for low-income families.

The ceremony highlighted a legislative session in which state policymakers repeatedly turned to the state surplus to flatten inequalities. Lawmakers approved dozens of new tax credits this year that tapped into massive revenue that the state was unable to retain and would otherwise have to pay back through refund checks.

The new family affordability tax credit Polis’s firm received is by far the largest single tax credit in terms of cost. It is also, its defenders say, one of the most impressive.

They hope it will lift more than 50,000 children out of poverty.

The new law, passed as House Bill 1311, will use approximately $700 million per year in excess of the state revenue growth limit established by the Taxpayer Bill of Rights, or TABOR. It will send Colorado’s poorest families $3,200 per child under 6 years old. The amount of the credit will reduce as the children get older and family income increases, eventually reaching zero at $85,000 per year for joint filers and once the children turn 17.

“Children don’t choose who their parents are or what their income level is or how they grow up,” Polis said during the bill-signing ceremony at a Denver preschool. “It is very important to make sure that children around the world have food on the table (and) the support they need to grow.”

The child tax credit joins others approved or expanded by the legislature this year, including an increase in the state’s match for the Earned Income Tax Credit. In total, the new policies capture billions of dollars of projected TABOR surpluses in the coming years that would have to be returned to taxpayers one way or another.

Democratic lawmakers, often over dissenting Republicans, opted primarily for targeted credits rather than the blanket rebates that have long been typical of the state’s boom years.

How the new tax credits work

The Colorado Fiscal Institute, a progressive think tank involved in crafting the legislation, predicts that families will receive up to $4,400 a year for each child age 5 and younger through an expanded child care tax credit and the new family affordability tax credit.

Add to that the increase in the Earned Income Tax Credit, which matches up to 50% of the federal EITC that sends money to low-income households, and Colorado families could see significant financial help. The state’s EITC match doubled this year, amounting to nearly $1,900 additional for very low-income working families with three or more children.

Credits depend on consistent TABOR surpluses and will be reduced in less robust economic times. Caroline Nutter, legislative coordinator of the think tank, estimates that the changes in credits will reduce the number of children in poverty (about 133,000 children) by 40% in the years in which the credits are fully funded.

“What we’re really trying to do there is make sure that families, even those who make more than the median family income in Colorado, get help,” Nutter said. “Raising children in this state is not cheap. Even if you make $100,000 a year, it’s still a very high cost.”

Credits, although they accumulate, work differently:

  • The EITC expansion is based on a federal tax credit worth between $600 (for people without children) and $7,430 (for families with three or more children). Qualifying limits range from $17,640 per year in adjusted gross income for a single person to $63,398 for joint filers. Colorado will match up to 50% of the federal credit if the state’s growth is on solid footing.
  • The child care tax credit covers a percentage of child care costs, based on household income. At most, the federal credit covers about $1,050 for one dependent child and up to $2,100 for two or more. Colorado’s credit matches up to 70% of that for households with incomes of $60,000 or less.
  • The new family tax credit is reduced based on family income, as well as the ages and number of children. Single filers earning $15,000 or less per year in adjusted gross income (and joint filers earning $25,000 or less) will receive up to $3,200 for each child under age 6 and, for children ages 6 to 16, up to $2,400. Credit amounts decrease as income increases, capped at $75,000 for single filers and $85,000 for joint filers.

Coloradans can also benefit from other credits, notably a $1,500 credit for child care workers, home health workers, personal care aides and certified nursing assistants earning less than $75,000 per year that Polis also signed into law as law on Friday. Earlier this week, he approved a new tax credit that covers two years of in-state college tuition for students whose families earn $90,000 a year or less.

Senator Michael Bennet addresses graduating preschoolers at Denver KinderCare in Denver on Friday, May 31, 2024. (Photo by Zachary Spindler-Krage/The Denver Post)
U.S. Senator Michael Bennet addresses graduating preschoolers at Denver KinderCare in Denver on Friday, May 31, 2024. (Photo by Zachary Spindler-Krage/The Denver Post)

Present at Friday’s ceremony was U.S. Sen. Michael Bennet, who has championed a short-lived federal child tax credit that he hopes to revive in Congress next year taking advantage of the imminent expiration of the tax cuts. He praised the state’s new credit.

“The family affordability tax credit attests to the idea that we do not have to accept these levels of child poverty as a permanent state of our economy, our democracy or our society,” he said. “I think the national leadership that he has shown here is something that we will take to Washington, DC, to be able to say that because of his leadership, the governor, Colorado now has the best anti-poverty legislation of any state in the United States. .”

Do the new credits undermine TABOR?

Taken together, Colorado’s new tax credits represent a reinvention of how state officials handle TABOR surpluses, while trying to stay within the limitations of the constitutional amendment approved by voters more than 30 years ago.

Traditionally, state revenue above the limit would be returned to Coloradans largely through a six-tier system that gave higher-income households a larger share under the idea that they paid more in taxes. Nutter called that approach “wasteful” because it directs money to the people who already have the most resources.

The Common Sense Institute, a nonpartisan, free-enterprise-oriented think tank, noted that the money returned through tax credits still remains with Colorado taxpayers, rather than going to government programs. But a CSI report on tax credits argues that the new approach “vastly undermines the intent of TABOR” by separating refunds from taxes paid.

In the coming years, more than $1 billion a year that would normally be refunded through the six-tier system will go toward specific tax credits, according to their report.

Lang Sias, a former state representative and now a researcher at the think tank, said the legislature “has effectively substituted its discretion on how those tax dollars should be spent with that of the taxpayers who would otherwise receive the refunds.”

“We are moving away from the TABOR rebate and toward a TABOR redistribution,” he said in an interview.

He did not weigh in on the merits of the new policies, but questioned lawmakers’ decision to tie the new tax credits to the state’s surplus and, in some cases, to give them expirations. Assuming they are as beneficial as advocates say, both cases mean they may not be permanent policies.

The new tax credits are also not the only way state officials responded to a foreseeable future of surpluses of more than $1 billion. Polis fought for a $450 million income tax cut, which will primarily benefit the wealthiest Coloradans, and a decrease in the state sales tax rate during economic booms.

Taxpayers can also continue to expect flat TABOR refunds when they file their taxes, although closer to the $115 range than the $700-plus amounts of recent years.

Nutter argued that while the change will affect income brackets differently compared to the previous system, people across the spectrum will still see more money in their pockets, coming from credit or, for wealthier people, through through tax cuts.

Stay up to date with Colorado Politics by subscribing to our weekly newsletter, The Spot.