Colorado lawmakers pass bill expected to raise $156M for education, will put nicotine tax on the ballot

On the right, the dome of the Colorado State Capitol rises above a leafless tree and a pigeon taking flight.
Colorado lawmakers closed out the 2020 legislative session by passing a bill that will cut certain tax deductions for businesses and the wealthy, as well as another that will pose a question to voters whether they’ll allow an increased nicotine tax. Both measures will raise money for K-12 education (Helen H. Richardson / The Denver Post)

During the closing hours of the 2020 Colorado legislative session, the Democratic majority passed two tax measures that are expected to raise education dollars. 

Lawmakers last week introduced the hastily put together bills, as Democrats began to worry about how coronavirus will affect the state’s ability to fund K-12 schools after next year. The state is facing a $3.3 billion revenue shortfall into the next fiscal year and education funding statewide will take an almost 15% cut.

One of the approved measures will change state tax code and get rid of some tax breaks for businesses and wealthy individuals, raising an estimated $156 million over the next three years. The other paves the way for a November ballot measure to increase the sales tax on nicotine products and would raise an estimated $82.7 million next year. Both bills, which the majority of Republican lawmakers opposed, would direct funds to K-12 education.

“These bills work in tandem to alleviate the sharp pains that our people and our budget have been experiencing,” said state Sen. Dominick Moreno, a Commerce City Democrat and member of the Joint Budget Committee, in a statement.

Most Republicans opposed changes to the tax code, as did Gov. Jared Polis, a Democrat.

To strike a deal, Democrats heavily amended the bill to pare down the scope of tax breaks.

But Democrats are determined not to let the tax code debate end. Rep. Emily Sirota, a Denver co-sponsor of the bill, promised the issue will come up again next year.

While thanking the legislature for striking a deal on an amendment that scaled back the bill, Polis also signaled further changes to state tax code might be in Colorado’s future. Polis has said he’d like to reduce the state income tax rate and make up the lost revenue by closing loopholes, but the first two years of his administration failed to produce a deal. 

“I’m hopeful there is a bigger deal to be had in the future to reduce special interest tax loopholes,” Polis said during a news conference.

The tax code measure removes state tax breaks that were similar to those in the 2017 federal tax bill and this year’s federal coronavirus relief legislation. 

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State Sen. Chris Hansen, who sponsored the Colorado bill, said the new legislation is projected to  raise $84 million for education in its first year, and $47 million and $25 million in the following two years, respectively.

Democrats originally hoped to raise $1 billion over several years for education through the elimination of the tax breaks. But the scope of the bill was widely opposed by the business community.

Tax reform and education groups said the bill’s change to the tax code was necessary.

“I believe the bill that passed is the best we could hope for under all of the extraordinary circumstances that happened this session,” said Scott Wasserman, Bell Policy Center president. “The work to better fund our state and create a fair tax code continues, and I’m confident it’s not going to slow down anytime soon.”

As for the nicotine tax, voters in November will have the final say on whether they want to support an increase on tobacco products to fund such priorities as rural schools and the expansion of Colorado’s public preschool program.

Voters need to decide whether to increase cigarette taxes by $1.10 a pack initially, with the amount rising to $1.80 per pack after seven years. Vaping isn’t currently taxed, but would be if the ballot question is approved. 

In 2016, Colorado voters rejected a cigarette tax increase.

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