Colorado Democrats are set to unveil a suite of bills Tuesday that aim to divorce the state tax code from recent federal changes — generating extra state revenue that would be used to provide at least some money to low and middle-income families with children.
The legislative package sponsored by a dozen lawmakers would repeal a variety of state tax exemptions that mirror tax breaks in the federal code. It puts a particular focus on splitting the state tax code from changes made by the tax cut bill passed last year by Congress and championed by President Donald Trump.
The targeted cuts would include a cap on how much corporations can write off from operating losses, how much depreciation businesses can write off for things like buildings and equipment, and how much interest a business can deduct from its taxes.
The new bills, which are the focus of a news conference at 12:30 p.m., build off state Democrats’ work during last summer’s special session to close a slew of tax exemptions and update the state tax code in response to H.R. 1. That is the federal tax bill commonly known as Trump’s “big beautiful bill.”
Lawmakers hope to use the money the state pockets from ending the exemptions to extend or expand some state tax credits, such as those for rehabbing mostly vacant buildings in enterprise zones and for wildfire mitigation. Supporters also hope to steer some of the money to recipients of the state’s new — and on the ropes — Family Affordability Tax Credit, or the FATC.
That new program has given direct payments to low- and middle-income families to help with child-rearing costs, starting with the tax-filing season a year ago. Researchers credited the program with helping to cut Colorado’s child poverty by more than a third last year.
But the changes to the federal tax code last summer plunged Colorado’s tax collections below a threshold that would allow for that new credit in the current fiscal year, meaning families won’t receive the money when they file their taxes in 2027.
The tax package proposed Tuesday wouldn’t funnel money directly into that credit, but it would create a new Family Affordability Credit mirroring the FATC’s design.
The current family credit gives money directly to joint filers with incomes below $96,000 or single filers with incomes below $85,000. The credit provides more money to lower-income families and those with younger children, and then scales the credit down as the incomes and ages of tax filers rise.
Rep. Yara Zokaie, a Fort Collins Democrat, said it is “crucial” to pass the tax reform package this year because of how effective the FATC has been.
“The progress we made is not something I’m willing to walk back,” Zokaie said in an interview previewing the package.
The bills have not yet been formally introduced, and a nonpartisan fiscal analysis showing their effect on state tax collections and spending is not yet available.
In addition to Zokaie, the bills are being sponsored by Democratic Reps. Andrew Boesenecker, Kyle Brown, Lorena Garcia, Karen McCormick, Emily Sirota and Steven Woodrow, plus Sens. Judy Amabile, Matt Ball, Cathy Kipp, Katie Wallace and Mike Weissman.
The party has a nearly 2-to-1 majority in the Capitol. But Gov. Jared Polis, also a Democrat, said in an interview at the start of the legislative session in January that he’d want broad-based tax cuts as part of any tax package. He won an income tax cut as part of negotiations to pass the original FATC bill in 2024.
This year, however, Garcia said that “never in a million years” would she consider a broad-based tax cut when the caucus’s goal is direct support to working families.
“At the end of the day, the governor is going to see that this is absolutely necessary,” Garcia said. “He’s trying to say that he wants to put money back in the hands of hardworking families. This is how we do it.”
The new package is part of a broader push on the left to remake Colorado’s tax system. The state has long been governed by the Taxpayer’s Bill of Rights, or TABOR, which mandates a flat income tax and caps state revenue collection.
The Colorado Education Association is backing a proposed ballot measure that would exempt education spending from the cap — in effect, giving the state an additional buffer of billions of dollars before it would have to refund money to taxpayers. It would earmark some of the cash for education. Sen. Jeff Bridges, a Greenwood Village Democrat, is planning to introduce a bill to refer that measure to the ballot.
The progressive Bell Policy Center recently won preliminary approval to solicit signatures through the initiative process for another measure that would institute a graduated income tax, in which wealthier Coloradans would pay a higher percentage of their incomes in taxes.
The proposals wouldn’t necessarily compete with each other, but they would upend the foundation of Colorado’s tax code.
For one, the proposals would, in effect, erase the state’s TABOR surplus, or the money collected over the revenue cap. That money is generally used to pay for a slew of Colorado tax credits, including the FATC, before issuing general taxpayer refunds. The tax package unveiled Tuesday would sidestep that issue by dedicating money from the closed write-offs and other exemptions to fund the new, similar-but-separate Family Affordability Credit.
This is a developing story and will be updated.
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