With the drama of the legislative session behind us, we should think broadly about Colorado’s future.
Reformers got a lot of legislation they wanted, in the past few sessions – new aligned standards and curricula, greater ability to innovate, meaningful data systems, more rigorous teacher evaluations – but each of these will take money to implement well.
Indeed, if we are to sustain an adequate K-12 education system, and any publicly-funded higher education system at all, much less aspire to the great, and reformed, system many of us would like to see, the state fiscal picture needs to be addressed. Soon.
Part of that requires an ability of polite people to have adult conversations about taxes. Not just “NOOO.”
At the national level, according to the U.S Department of Commerce’s Bureau of Economic Analysis, all combined federal, state, and local taxes (including income, sales and property taxes) were 9.2 percent of personal income in 2009, the lowest level since 1950. That’s right – we now have the lowest effective tax burden we have had in 60 years, and well below the average rate over that period, of 12 percent.
Some would suggest, misleadingly, that today’s tax rates are high, or that economic growth would be choked off by raising taxes. There have been some very strong periods of American economic growth since 1950, and many of those occurred when effective tax burdens were considerably higher than they are today (and, even more so, effective rates on the highest income Americans are now at long-time low levels).
Moving to the state level, effective state and local tax burdens in Colorado are about 90 percent of the national average across the American states – by becoming just an “average” state, we could bring in about another billion dollars for state investments. And, Colorado used to be an average state, but the various complex constitutional restraints (with TABOR at the heart) have changed that – over time, the state general fund percentage of total state personal income has fallen from a range of 4-5 percent for the two decades from 1979-1999 to about 3.2 percent today.
These national and state percentages changes may seem small, but since the national GDP is about $13 trillion dollars (and Colorado’s gross state product is about $245 billion), small percentage differences mean large dollars not collected, and thus not available for education and other investments. The argument that Colorado doesn’t have capacity to invest more in its future just doesn’t hold water – we are in or near the top ten states for per capita income, and our gross state product is about equivalent to the economic capacity of Finland, a nation whose education test results and teacher quality we greatly admire – and Finland spends about twice as much of its tax base on education as does Colorado (including Colorado’s federal support).
Nobody likes to pay taxes – I certainly don’t. But, in return for paying taxes, you get investments and services. At the state level, more than 52 percent of the general fund budget in Colorado goes to K12 and higher education, so a conversation about education is also a conversation about tax levels.
As a nation, and even more so as a state, we have moved to a situation where tax levels are probably too low to support the services we want. It has become political death for aspiring candidates to talk about taxes, probably since Walter Mondale tried it in the presidential election of 1984. TABOR forces politicians to take every case directly to the voters, even more challenging a task, and arguably not a smart idea when polling data shows that many citizen (not surprisingly) want an impossible combination of low taxes and high quality services at the same time.
But, this approach needs to change. If we are ever going to have a fair and balanced discussion about taxes, and the possibility of raising them, shouldn’t it come at the very time when the burden is the lowest it has been, both nationally and in Colorado, in several generations?
Whatever the outcomes, we need to have adult discussions about the services we want (do we really not want street lights and trash containers in public parks, a la Colorado Springs? Do we really want the biggest K-12 achievement gap in the nation? Do we really want the fastest growth in child poverty in America?) and the reality that we need taxes to pay for services.
Taxes become investments in education, ones that can pay off, over time, in better educated citizens, workers, and yes future taxpayers.
Popularity: 32% [?]
As a regular middle class person, I can tell you why I don’t support higher taxes. When I look at my pay stub, federal, state, social security, and Medicare taxes take up approximately 35% of our pay. This does not include the property and sales taxes we pay. The problem with taxes is that the same people, the middle class, pay for everything. You cite that the average tax rate is 9.2%, but most middle class people are paying much more than this. The poor people that need and demand the most services are not paying anything. As always, the rich find ways to not pay there fair share, and this leaves middle class people left holding the purse. I would be happy if the government spent more money to create a strong education system. The problem is the government spends so much on stuff that most people don’t need or want, and then there is no money for education and the things we do want. Your solution to this problem is that we pay more taxes. My solution is that we make choices, because I already spend more than 35% of my money on taxes. Seriously, how much more do you want me to spend?
Hally, What exactly does the the government spend money on that people don’t need or want? There is no line item for waste. The state general fund spends the vast majority of its money on just a few things. To quote the legislative analyst:
“Close to 96 percent of the operating budget is spent on six types of state services:
K-12 education, health care, higher education, human services programs, prisons, and the judicial system.”
Which thing do you want to cut?
r2
If I had to choose, I would cut healthcare and/or human service programs. What would you cut or how would you continue to fund all these things?
Hally – I agree that very wealthy people are not paying their shares – the percentage of national income now earned by the very wealthy is near all time highs, and their national tax rates are much lower than they have been in the past. Of course, in Colorado, we have a flat income tax rate for all households, so burdens are pretty much proportionate to income.
Of the elements you note that come out of your paycheck (and I’m confident that your 35% estimate is too high), Medicaid (2.9%) will provide you with high quality health care after you turn 65. The 7% or so for Social Security will provide you with a pension after age 62, 65, or 67 (your choice). These programs are for you, not for someone else. And, Medicare is there in case you have very bad luck in the future, and become poor, and need access to basic healthcare.
My “radical” idea here . . . is to consider whether Colorado might want to be average, again, in its state tax burden, or whether we really want to be near last in funding all public services, as we are now.
This is not an exaggeration. I am looking at my pay stub. The exact figure is 33.01497%. . We have no dependents, and both my husband and I have pretty good jobs, so this may explain the high tax burden. Once again, this does not include property or sales taxes. I will agree with you that most of this goes to federal taxes. Nonetheless, it is alot of money.
I have only lived in Colorado for a little over one year, so maybe I don’t have the same historical prospective as most people here. I have been really happy with the level of services provided. I have no complaints. I am not a crazy anti-tax person that does not want to pay ANY taxes, but I just think I already pay enough.
If we were paying enough taxes, the state’s infrastructure – schools, highways and streets, etc., would not be in disrepair. If we want excellent schools and paved streets, etc., we must pay for those services.
I appreciate Paul’s thoughtful work in assembling this post, but respectfully must take some issue. A leading fallacy in his major argument, of course, is that increasing marginal tax rates has no negative impact on economic activity, employment and income. But the plight of Colorado is also overstated. The following facts provide some key context:
1. A look at Tax Foundation data shows that from 1977 to 2008 Colorado’s share of income spent on state & local taxes dropped from 10.5% to 9.0%, ranking us 34th in highest state/local tax burden. Why did this happen? In real dollars per capita income grew by 61.1%, while per capita state & local taxes grew by the substantial (but smaller) 37.95%.
http://taxfoundation.org/taxdata/show/335.html
2. The NEA’s analysis of Census Bureau data shows that for 2006-07 (most recent data available), Colorado ranks 28th in per capita state & local tax revenue at $3,832:
http://www.nea.org/assets/docs/010rankings.pdf (pg 32, Table E-3)
3. Looking only at the appropriations history of the state budget (local government revenues & expenditures excluded), state government spends 84.9% more per person in 2009-10 than it did in 1982-83 — after adjusting for inflation.
http://www.state.co.us/gov_dir/leg_dir/jbc/apphist.pdf
http://www.census.gov/popest/archives/1980s/st8090ts.txt
http://www.census.gov/popest/states/NST-ann-est.html
http://www.colorado.gov/cs/Satellite/CGA-LegislativeCouncil/CLC/1209375339625
4. Where is the source that shows a correlation between tax effort or per-pupil spending and K-12 achievement gaps? A look at NAEP results reveals Colorado ranks below average in achievement gaps in some testing categories and above average in others:
http://nces.ed.gov/nationsreportcard/statecomparisons/
5. The claim that Colorado leads the nation in rising child poverty rates is likely overstated and lacks key context. The executive summary of a 2008 issue paper written by one of my Independence Institute colleagues highlights the point clearly:
http://www.i2i.org/articles/IP_11_2008_a.pdf
As Paul acknowledges, TABOR allows voters to decide if tax increases are necessary. If popular opinion is an obstacle in this case (and it should be noted that popular opinion also wildly underestimates how much we spend on schools – http://educationnext.org/is-the-price-right/), that’s at least as much because Average Joe doesn’t distinguish federal tax burden from local/state tax burden as the actual rise in state & local spending.
The answer of course is to limit the scope of government spending, to cut programs, to reform public employee pensions, to reform entitlements — some hard decisions, to be sure, but necessary to ensure long-term financial stability (see http://mygovspending.org for a thorough look at this challenge). Where the political will for all that might come from remains to be seen (maybe by informing them how much is actually spent), before we are overcome by debt.