Colorado Democrats are eying a large portion of the state’s $1.8 billion-plus surplus this year to provide child tax credits targeted to help lower-income families — along with another slice devoted to helping people working in health- and child-care fields.
The proposals are costly policy moves that could put state lawmakers on a path for conflict with Gov. Jared Polis, a fellow Democrat, over what to do with the surplus and broader tax policy. The legislators, including a top member of the House, argue the money — which normally would be refunded to taxpayers — gives Colorado an opportunity to help the people most in need.
The child tax credits bill, introduced Friday afternoon, would direct up to $3,200 per child younger than 6 to the lowest-income families in the state. That credit would taper down as qualifying families’ incomes increase, up to a limit of $85,000 for single filers and $95,000 for joint filers. Those families would receive a $120 credit.
Another credit would apply for families with children ages 6 to 16 — starting at $2,400 and tapering down to $90 for single and joint filers at the same income limits.
Rep. Chris deGruy Kennedy, a Lakewood Democrat, said the proposal could cut the state’s child poverty rates in half. Some 133,000 Colorado children currently live in poverty, according to the Colorado Children’s Campaign.
“When you pump this money into those families at that level, it can be a game changer for their lives,” deGruy Kennedy said.
He said the child tax credits would cost roughly $800 million per year, though an official estimate was still pending.
The proposal was modeled largely after the pandemic-era federal child tax credit expansion championed by U.S. Sen. Michael Bennet of Colorado, he said. The federal program gave families direct cash assistance in 2021 and was credited with slashing the national childhood poverty rate, but Congress allowed the expansion to lapse after a year.
Bennet has tried to resurrect it, and a bipartisan tax bill recently passed by the U.S. House contained a new expansion of the credit; that bill is now pending in the Senate.
DeGruy Kennedy’s state proposal is still in its beginning stages, and he expects it to change as the bill moves through the legislative process — and as it’s negotiated with the governor’s office. That includes determining if a direct monthly payment, or an annual refund like what the state sends now, would be more practical.
He identified the bill’s co-sponsors as Rep. Jenny Willford of Northglenn and Sens. Faith Winter of Westminster and James Coleman of Denver. All are Democrats.
The proposed child tax credits would be permanent but would depend on the availability of surplus tax revenue above the limit set by the Taxpayer’s Bill of Rights, or TABOR.
Democrats have drawn on surplus money for other relief
The measure joins a suite of other pitches by the majority Democrats to direct tax dollars collected over the TABOR cap toward lower-income Coloradans, including a further expansion of the Earned Income Tax Credit and a bill to provide additional tax relief to people 65 and older.
But as a consequence, the approach would chew into the tax refunds Coloradans have come to expect in recent years.
It also pits legislative Democrats against Polis, who wants an income tax cut to be part of any broader tax reform package. That desire — reiterated in Polis’ January State of the State address — is a nonstarter for some Democratic lawmakers, who argue that such a reduction would mostly benefit the state’s wealthiest earners.
Earlier this week, a committee controlled by Democrats killed a Republican-backed income tax cut proposal.
In a statement Friday, Polis spokeswoman Shelby Wieman said the governor “looks forward to a conversation on the child tax credit and other important tax policies — including his priority of a temporary rate cut to the income tax — during this legislative session to provide relief to all Coloradans and to help our economy grow.”
DeGruy Kennedy said he’s working with the governor’s office on a compromise that would include cuts to the state’s income and sales tax rates in conjunction with the expanded tax credits for families.
He said this effort was “very much about planting the flag” to establish the view that the state can use TABOR surplus money to tackle societal issues. He expects a fight over tapping into the surplus, especially since it has become a political tripwire following the failure of Proposition HH, which voters soundly defeated in November.
Proposition HH would have raised the TABOR revenue cap to pay for education and cut property taxes. Republicans in particular have taken HH’s defeat to mean voters don’t want lawmakers to touch TABOR surpluses — or their refunds.
DeGruy Kennedy, though, framed a rhetorical question for Colorado voters: “Are you willing to give up a little bit of that (TABOR surplus) if this could be a transformational policy change for families in Colorado who are really living on the edge?”
Credit for health, early childhood workers
Also included in the tax credit package was a second bill introduced by House Democrats on Friday, which would direct a $1,500 annual tax credit to certain care workers, including those working in home health, early childhood and personal health.
The credit would be targeted to lower-income workers, which includes most of the people in those fields, said Rep. Lorena Garcia, an Adams County Democrat sponsoring the bill.
Like the child tax credit, the care workers credit would be permanent but dependent upon a TABOR surplus. It would cost more than $100 million per year, Garcia said, and would benefit as many as 70,000 lower-income workers.
“We’re able to help folks for whom $1,500 really is the difference between getting evicted or getting your car repossessed,” said Garcia, who’s backing the bill with Rep. Emily Sirota, a Denver Democrat. “Whereas (for) other folks in higher-income brackets, $1,500 is something nice to add to your savings account.”
Her bill is part of the negotiations with the governor’s office, Garcia said. But including an across-the-board cut to the state’s income tax rate as part of that deal would be a “nonstarter,” she said.
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An income tax cut is on Polis’ wish list, and Republicans want one, too. Democrats just rejected the first attempt.
“Having a flat rate income tax (cut) — while everyone benefits, it disproportionately benefits the rich,” she said, adding that lawmakers “would be happy” to discuss referring a ballot measure to voters that would cut the income tax rate for lower- and middle-income earners.
After she introduced two of the tax credit bills Friday, House Speaker Julie McCluskie said Democratic legislators had worked to “make sure that we are supporting the hard-working families of our state.”
“These are seasoned lawmakers who have brought forward some pretty big ideas,” she said, “and I look forward to the ongoing conversations.”
McCluskie demurred when asked about disagreements between Polis and Democratic legislators over an income tax cut, though she said that she hoped Polis “is thoughtful about just pushing one idea.”
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