The battle over Colorado’s future tax system has officially begun, and the stakes for families, businesses, and the state’s economy couldn’t be higher.
Backed by a coalition of advocacy groups that consistently push for higher taxes as the solution to Colorado’s challenges, the Bell Policy Center submitted proposed language for the 2026 ballot that would overturn nearly four decades of sensible tax policy by abandoning Colorado’s flat-rate income tax and adopting a graduated tax system.
Under their proposals, Colorado taxpayers would be forced to confront a new five-bracket tax system with marginal rates up to 9.5 percent, among the highest in the country. The proponents claim it’s about fairness, equity, and making the rich “pay their fair share” while providing more money for schools, healthcare, and other public services.
But behind these carefully crafted talking points lies a dangerous reality. This proposal risks destabilizing Colorado’s economy at a precarious moment, undermining the state’s competitive advantages, and fatally damaging the taxpayer protections that have kept Colorado fiscally disciplined for decades.
In short, what they propose is not a progressive reform, but a regressive backslide.
Colorado’s flat tax revolution
In 1987, the legislature voted to make Colorado the first state to transition from a graduated tax system to one that relies on a flat income tax rate applied evenly across all income levels.
Today, thanks to multiple ballot measures brought forward by Independence Institute, Colorado’s free market think tank, and overwhelmingly approved by the voters, that rate stands at just 4.4 percent, one of the lowest in the nation. Colorado’s relatively low flat tax has, in turn, helped make the state an attractive destination for established businesses, entrepreneurs, and skilled workers from across the country.
That’s because the flat tax system has several key advantages. Setting a single uniform rate makes tax filing simpler and more predictable for everyone, from individuals and families to mom-and-pop businesses and major corporations. It avoids the confusion of brackets, reduces disincentives to work harder or earn more, and eliminates concerns about inflationary bracket creep.
With one rate for everyone, taxpayers and state officials alike can forecast revenues and obligations with greater efficiency and clarity.
Finally, ensuring that tax policy changes affect all taxpayers equally prevents schemes to impose concentrated costs on small groups of residents. Thus, the flat tax acts as a powerful political disincentive against policymakers making routine requests for higher taxes.
Other states have recognized these upsides. Since 1987, eleven states have gradually followed Colorado’s lead in transitioning to a flat tax system—including eight in the last four years alone—in a phenomenon that’s come to be referred to as the state flat tax revolution. Notably, no state that has transitioned to a flat tax has ever reversed course.
Only two states, Connecticut and Massachusetts, have ever switched from an original flat tax system to one in which different income levels are taxed at different rates. Each now finds itself in the bottom ten states for tax competitiveness, trailing behind every single flat tax state, according to the non-partisan Tax Foundation.
TABOR and the flat fax
As important to Colorado’s fiscal health as equal taxation is the Taxpayer’s Bill of Rights (TABOR).
The constitutional amendment limits annual growth of a portion of state revenues to the combined rate of inflation and population increase. When revenues exceed this cap, as they often have in recent years, the surplus is refunded back to taxpayers. Critically, TABOR also requires that any income tax be imposed as a single rate and that any statewide tax increase be approved directly by the people.
Because of these features, TABOR is more than just a tool for good governance. It’s also a constitutional bulwark that ensures state government cannot quietly ratchet up fiscal burdens on Colorado families and businesses without broad-based voter consent. It forces policymakers to live within their means (just as Colorado families must do) and gives citizens the last word on changing course.
As a result, Colorado voters have been able to regularly resist attempts by the state government to eliminate refunds by keeping and spending overcollected tax revenue. It’s one of the reasons TABOR enjoys overwhelming majority support among Coloradans.
However, the proposed graduated income tax amendment would punch a devastating hole in this taxpayer safeguard.
The proposals explicitly exempt any new money raised under the graduated tax from TABOR’s revenue caps, which proponents estimate to be $2.3 billion. This would set a dangerous new precedent. Once one carve-out is allowed, others will surely follow, as the rapid spread of local “de-TABORing” measures has made clear.
Furthermore, TABOR’s current status as an unwavering check against new income tax increases would also cease to exist, as opportunistic policymakers and interest groups looking to fund new initiatives will simply be able to ask the many to vote on tax increases for the few.
Tax base instability
The tendency under graduated income tax systems towards greater reliance on a small portion of the tax base invites revenue volatility. Incomes of high earners and larger businesses can fluctuate dramatically with the ebb and flow of broader economic conditions each year. In good years, revenue pours in. In bad years, it dries up.
Colorado already has plenty of experience with painful budget squeezes during economic downturns. Imagine layering on top of that a system that ties the state’s finances even more tightly to the fortunes of a relatively small slice of taxpayers. The result would be a choice between deeper cuts to schools, healthcare, and other budget priorities or even more requests for tax hikes to shore up the state’s coffers in periods when Coloradans need stability the most.
This is not a theoretical risk. States like California, New York, and New Jersey, with graduated income tax codes and high top marginal rates, have weathered severe fiscal whiplash when their wealthiest residents have moved, retired, or shifted income elsewhere. California in particular depends on the top 1 percent for nearly half its income tax revenue, creating massive budget shortfalls when economic tides turn or high earners flee for lower tax states.
And while proponents may scoff at the idea that high earners will leave Colorado if this measure passes, the evidence is clear that taxes play a major role in relocation decisions for workers and businesses alike. Studies show that wealthy individuals and businesses are highly responsive to changes in tax policy. When New Jersey raised its top tax rates, for instance, the state saw a measurable out-migration of high-income households. The same effect has been documented in California and New York.
Colorado policy changes don’t exist in a vacuum. Until recently, we’ve been among the leading states attracting new residents and labor market talent. But we compete with low-or no-income tax states like Texas, Arizona, Nevada, and Florida—all popular relocation destinations that have recently surpassed Colorado in terms of in-migration. We cannot afford to risk driving away the innovators, entrepreneurs, and professionals who boost our economy at a time when years of booming growth have already started to give way to stagnation.
The ‘fairness’ fallacy
Supporters of the graduated tax system claim that it is simply more “fair.” Their definition of fairness boils down to an unbounded proposition that the wealthy should simply pay more, no matter what.
Yet even under Colorado’s current flat tax, the state’s highest earners already contribute the bulk of the state’s annual income tax revenue. According to the Colorado Department of Revenue’s 2024 Colorado Tax Profile and Expenditure Report, the top 20 percent of earners paid well over 60 percent of the state’s income taxes. In fact, households making over $200,000 alone contributed 48 percent of the state’s income tax revenue despite making up just 8 percent of all households. By contrast, households making $50,000 a year or less paid just nine percent of the state’s income tax revenue collected.
Those numbers should not come as a surprise. Even under a flat rate, those with higher incomes shoulder a larger share of the tax burden because 4.4 percent of $500,000 is far more than 4.4 percent of $50,000.
Calling the current system of equal taxation “unfair” is simply tendentious, at best.
A better path forward
Colorado’s budget does face challenges, but abandoning the flat tax is not the answer to bolstering its resilience. If policymakers feel that more revenue is truly needed, the state has other options.
Independence Institute research has documented a meteoric rise in tax expenditures—deductions, credits, and other subsidies—passed by the legislature since 2019–that have benefitted narrow interests at the expense of the overall budget. A repeal of these expenditures would free up billions of dollars in the new revenue for other government programs or to provide broad-based tax relief for all Colorado taxpayers.
Furthermore, the state could return to prioritizing the policies that made it such an attractive destination for economic activity throughout the 2010s, including by addressing the state’s increasingly unfriendly regulatory climate. A more dynamic business climate could lead to increased tax revenue without a single change to the state’s tax code or jettisoning popular constitutional protections.
The bottom line
The graduated tax measure is a solution in search of a problem. It promises fairness but delivers instability and demagoguery.
It claims to address long-standing complaints about “underfunding” progressive priorities but risks undermining the very revenue streams that pay for them. Worst of all, it makes a hash of the taxpayer protections enshrined by voters in TABOR, opening the door to unchecked government expansion at the expense of Colorado families and businesses.
Colorado’s flat tax is not broken. It is one of the state’s greatest remaining competitive advantages. Paired with TABOR, it has kept government spending in check, warded off over-taxation, and inspired a movement in other states.
We should be proud of this legacy, not working to dismantle it. Colorado’s future prosperity depends on keeping our flat tax and TABOR protections intact.
A version of this essay first appeared in the Denver Gazette.
