DENVER–Republicans love tax credits, just not when they go to people who don’t pay taxes.
That’s one reason Senate Democrats approved Wednesday the Colorado Working Families Economic Opportunity Act with no Republican support. During debate, Republicans said Senate Bill 1 essentially amounted to a $100 million government handout.
“Once you have reduced your tax liability to zero, you’ll be eligible to receive a direct check from the state,” said Senate Minority Leader Bill Cadman (R-Colo. Springs) during floor debate. “That’s a subsidy. That’s a giveaway.”
The bill would make permanent the Colorado refundable earned-income tax credit as a percentage of the federal EITC and create a state child-tax credit. As many as 370,000 Colorado workers would qualify for the refunds, which would cost $40 million in Fiscal Year 2013-14 and rise to $104 million two years later.
State Rep. John Kefalas (D-Fort Collins) said the measure would provide badly needed financial assistance and relief to the state’s lowest earners. To qualify, residents must hold a job, which would help move families “off cash assistance programs and into the workplace,” he said.
“SB 1, I believe, is an effective tool to help working families make ends meet, to address child poverty and to put dollars into our local economy,” said Kefalas. “The child tax credit and earned income tax credit are designed to encourage and reward work.”
But Republicans said the bill has two unresolved problems: One, the measure would deplete the general fund at a time when the state is slicing higher education and K-12 funding, and two, about two-thirds of those who would qualify for the credit don’t pay state income taxes.
State Sen. Kevin Lundberg (R-Berthoud) called the bill a “redistribution of wealth scheme” and pointed out that the measure applies to Colorado residents, not citizens, meaning that illegal immigrants would also qualify.
“The term ‘tax credit’ is used quite a bit with this bill, but it’s a refundable tax credit,” said Lundberg. “A refundable tax credit is not a tax credit if it’s being refunded despite their being no tax owed. And that’s what this bill does.”
Not all the opposition comes from the right. The Denver Post ran an editorial after the Senate vote Wednesday urging the House to defeat the bill.
“Times are still tough for working-class and middle-income families. No one questions that. Yet we can’t get past the argument that the state has more pressing priorities, such as keeping college affordable,” said the editorial.
Republicans expressed surprise Wednesday at the relative silence from education lobbyists, despite the bill’s apparent threat to K-12 and university funding.
“I want to ask my colleagues on this side of the aisle, where are the education advocates standing up for education when another $100 million is snatched from the children of Colorado from a new program?” said state Sen. Greg Brophy (D-Wray).
The answer may lie with another bill, Senate Bill 213, which would ask Colorado voters in November for a $1 billion tax increase for K-12 education. That measure, which has already passed the Senate, is awaiting a vote on the House floor after receiving the approval of the House Education Committee.
Quipped state Sen. Ted Harvey (R-Highlands Ranch), “I guess we’ll have to go do a $1 billion tax increase and ask the voters to fund these extra programs.”
Senate Bill 1 utilizes the refund mechanism in the state’s Taxpayer Bill of Rights. Under TABOR, the refund only kicks in when the state runs a surplus, but S.B. 1 would make the refund a permanent budgetary fixture.
In the long run, Kefalas said the program would improve the state’s financial picture by helping residents break the cycle of poverty.
“What we are attempting to do here will actually save the state money because more people will be able to lift themselves out of poverty,” said Kefalas.