Presentation by Colorado Fiscal Policy Institute
INTERIM COMMISSION TO STUDY FISCAL STABILITY
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Commission members received two memoranda prepared by Legislative Council Staff. The first memorandum was the 1959 McNichols Tax Study Recommendation (Attachment F). This memorandum answered a question posed earlier in the day by the commission about who funded the 1959 tax study. The study, which cost $1.9 million, was funded by the state. The second memorandum is Colorado Lottery Distributions, Revenues, and Expenditures (Attachment G).
11:36 AM -- Colorado Fiscal Policy Institute - Carol Hedges
Ms. Carol Hedges, representing the Colorado Fiscal Policy Institute, began her presentation. She provided the members with a handout that included several tables (Attachment H).
Ms. Hedges summarized the current state of the government's expenditures relative to state personal income and provided benchmark expenditures on topics such as K-12 education, Medicaid, higher education, and highways. She further suggested the current crisis is short term but limited funds would result in continual budget problems. Ms. Hedges further explained government spending, as it relates to economic expansions, has shrunk and that the current revenue policy lends to the revenue drain, and that tax rate reductions and declining property assessments have led to decreasing revenues. She added other tax exemptions have also contributed to falling revenues. Ms. Hedges stated Colorado can no longer cut its way out of the budget problems. Ms. Hedges suggested the state consider the way it works with the public and that the current approach to revenue requires evaluation.
The presentation moved to tax policy and budget decisions. Ms. Hedges referred to a table prepared by the National Conference of State Legislatures (NCSL). She stated the income tax computer system is old and needs modernization. She explained tax exemptions give away revenue and that part of the reason was Colorado lacks information on the revenue system. Ms. Hedges believes there is limited authority of the legislature and a lack of knowledge of the revenue system. She suggested the state review the objectives of taxes, both personal and corporate, to see if the tax cuts are accomplishing the intended objectives.
Ms. Hedges continued in more detail on sales and excise taxes, property taxes, and personal income taxes, noting charts 5 and 6 in the attachment regarding personal income taxes. She suggested more scrutiny on the tax burden among differing groups of people so a better definition of equitable could be defined. She suggested some alternative tax policies such as a flat tax rate or a tax rate. Ms. Hedges emphasized upgrading the collection practices, making sure everyone who owes taxes, pays those taxes. She discussed the Department of Revenue's level of staffing and computer system. She said the department is now charged with cutting 10 percent, making collecting these payments difficult. She warned the commission that current fixes for the budget that include increasing fees and taxes will push the economy back further. The commission raised questions about statistics regarding investments in K-12 and subsequent rankings among other states. Also, the commission asked for input on what would be a good size of government. There was discussion that not enough government is as bad as too much government. There was further discussion that the tax systems should be adjusted to tax goods as well as tangible services. The commission also suggested that the effects of tax rate increases on individuals and businesses must be considered.
In addition, commission members received several tables from Legislative Council Staff about income taxes (Attachment I). The members also received information about Colorado Capital Gains as a percent of adjusted gross income, which is included as Attachment J.
The commission recessed until 1:30 p.m.