Progressive income taxes don’t hurt the rich. They are penalties on upward mobility and hope that hurt everyone but the rich.
This article first appeared in the October 20, 2025 edition of Complete Colorado.
At a time when most states are cutting income taxes, some influential Colorado leftists want to jack up the state’s top income tax rate to one of the highest in the nation. They are hawking a “graduated” (or “progressive”) tax—that is, one that discriminates based on income. They promote this scheme with their usual demagogy, including the fraudulent claim that higher taxes will harm only “the rich.”
In truth, it will harm almost everyone but the rich.
Much of the Left’s demagogy is harmless, and some of it is even amusing. But this irresponsible scheme is positively dangerous. As explained below, it’s a revolver in a game of Russian Roulette aimed against the livelihood of Colorado families. A revolver with every chamber loaded.
As also explained below, what Colorado actually needs to stay competitive is to cut income tax rates, not raise them.
Taxes and state prosperity
In a previous Independence Institute paper, I cited some of the studies showing how taxes interact with state economies. Taxes, to be sure, are only one factor. But they affect most of the other factors.
The evidence shows that high tax levels promote stagnation, while lower ones (above a minimum level, assessed everywhere), promote prosperity.
Some of these studies are pretty nuanced. They measure the tax burden in different ways and measure relative prosperity in different ways.
Some studies explore the effects of taxes on states in the same part of the country. Others separate out the effects of different kinds of impositions. From the latter surveys, we’ve learned that “graduated” income levies are especially harmful to economic opportunity. This may be partly because income (unlike most sales or property) already is taxed at the federal level, so state income levies are a kind of “double taxation.”
More significantly, graduated income taxes punish the very people who (as a group, not invariably) would otherwise help the economy the most.
That last point is important. The people hurt most by punitive graduated levies are not “the rich.” Rich people generally find ways to avoid them. The people most harmed are those working to better themselves. For example, a potential entrepreneur may consider starting a new business, but then decide that the higher tax rates he will face make a risky move not worth it. Or an employee considering a better job may decide that, after factoring in the higher taxes, the move isn’t very appealing, so he keeps doing “the same ole, same ole.”
Other victims of graduated taxes—although they may never know it—are the workers who lose the opportunity to thrive in new and improved enterprises.
In other words, graduated taxes punish hope, hard work, productivity, upward mobility, and human thriving.
Which suits the leftist ideologues just fine.
Where Colorado stands
Colorado taxes income at a flat 4.4 percent. But it’s not really a flat rate because deductions and credits render it more “graduated.” Those with higher reportable income (that is, mostly those working their way up the economic ladder) pay a somewhat higher percentage than the rest of us. The poor pay a lot less.
Colorado’s income tax rate is around the middle of the national pack. Eight states have no income levies at all. Ten impose income taxes with a top rate below Colorado’s. One state, Washington, imposes a 7.0 percent levy, but only on a very narrow kind of income, so its burden is effectively below that of Colorado. Still another state, Mississippi, has a top rate that is the same as Colorado’s.
It’s the same story if you focus only on states in Colorado’s general vicinity. Nevada, South Dakota, Texas, and Wyoming have no income taxes at all. Arizona’s top rate is only 2.5 percent. The others are higher, but—and this point also is important—are mostly dropping fast.
Additionally, when you consider our sales tax burden, Colorado’s economic climate begins to look a lot less friendly. Colorado’s sales taxes are steep and getting steeper. Those of us who live and shop in Lakewood, for example, now pay 7.5 percent. In Denver it’s a brutal 9.15 percent.
Most states are cutting taxes
Sometimes the movement of tax rates—up or down—has more effect on a state’s economy than the beginning or ending rates. When considering tax movement, it’s best to consider what each state’s competitors are doing. A state might be able to enact a modest rate hike without much damage if other states are acting the same way. But if other states are cutting taxes and you are raising them, the result can be disastrous.
In Colorado, income tax rates have moved down since 2020, thanks to voter initiatives sponsored by Independence Institute. But the reduction has been small—from 4.63 percent to 4.4 percent. By contrast, most other states’ income tax cuts have been more dramatic. Here are some illustrations. The list is long to show that I’m not just cherry-picking a few states:
* Indiana is cutting its rate from 3.15% to 2.9%.
* Kansas is in the process of cutting its 5.58% top rate to 4.0%.
* Kentucky is dropping its top rate from 4% to 3%.
* Montana just cut its top rate from 5.9% to 5.4% (and it has no general sales tax, either).
* Nebraska’s rate is going down from 6.84% to 3.99%.
* North Dakota recently reduced its rate from 2.9% to 2.5%.
* Ohio just dropped its top rate from 3.5% to 2.75%
* Oklahoma just cut its rate by a quarter of a percent, and has in place a plan for further cuts of the same magnitude.
* Pennsylvania is at 3.07% and plans complete repeal.
* Tennessee recently rescinded its tax on investment income entirely, and now has no income tax at all.
* Utah just reduced its rate from 4.85% to 4.5%.
* West Virginia lowered its rate from 5.12% to 4.82%.
And this list doesn’t include states, like New Mexico, that have left their top rate intact, but cut income taxes in other ways.
To remain competitive, Colorado must respond in kind. That may be one reason even Governor Jared Polis—who is a “progressive” but rare among them in having real-world business experience—favors a total repeal of the Colorado income tax.
These facts also demonstrate that any scheme to raise state income tax rates should be laughed out of the public square, no matter how much the “progressive” husksters whine and demagogue about the issue.
