Tax Hikes And Tax Limits On The November Ballot In Colorado And Texas

National media coverage of statehouses lately has focused on the mid-decade congressional redistricting efforts taking place in a number of states. However, in addition to multistate redistricting maneuvers and the odd year elections in New Jersey and Virginia, voters across the country will also render decisions this November on many ballot measures that have both in-state economic consequences and national political implications.

The contrasting fiscal policy trends that have been on display in blue and red state legislatures are also turning up in ballot measures that will be put to voters this fall. In Colorado, for example, Democrats who hold majorities in both chambers of the state legislature are asking voters to approve two ballot measures this November, Propositions LL and MM, both of which authorize higher levels of taxation and spending in order to permanently enshrine boosted government benefits that lawmakers temporarily made more generous during the pandemic. While Senator Chuck Schumer (D-N.Y.) and fellow Democrats on Capitol Hill are pushing to extend boosted Obamacare subsidies and Medicaid spending that the Biden administration and the then-Democrat-controlled House and Senate enacted on a temporary basis in 2021, state-level Democrats in Colorado are seeking to enact two ballot measures in November that would raise taxes to permanently fund a taxpayer-funded school lunch program for which lawmakers temporarily expanded eligibility three years ago.

The two ballot measures that Colorado lawmakers referred to the November ballot, Propositions LL and MM, seek to expand and permanently codify a tax hike enacted in 2022, when Colorado voters approved Proposition FF, which made all Colorado public school students eligible for taxpayer-funded school lunches regardless of household income. In order to fund the expanded school lunch program, Proposition FF raised taxes by limiting itemized deductions for taxpayers with household earning above $300,000.

Prior to passage of Proposition FF, Colorado had limited itemized deductions to $60,000 for joint filers with income exceeding $400,000, $30,000 for single filers with income above that threshold. Enactment of Proposition FF expanded the share of Colorado households subject to state caps on itemized deductions by lowering the income threshold from $400,000 to $300,000. In addition to lowering that income threshold, Proposition FF also slashed deduction caps for joint filers from $60,000 to $16,000, and from $30,000 to $12,000 for single filers.

Proposition MM, which will appear on the Colorado ballot this November, builds upon Proposition FF by asking voters to approve another tax hike in order to permanently keep eligibility universal for the taxpayer-funded school lunch program. If approved, Proposition MM would further lower the itemized deduction caps from $16,000 to $2,000 for joint filers and from $12,000 to $1,000 for single filers. The tax hike imposed by Proposition MM is projected to raise $95 million annually on top of the funds raised by the Proposition FF tax increase.

“Why are we taxing wealthy people to buy free lunches for the kids of just slightly less wealthy people,” says Jon Caldara, president of Independence Institute, a Denver-based think tank. “Of course, children of poorer family should get a free lunch. But buying lunch for those who can afford it isn’t charity. It’s theft.”

The deduction limits imposed by Proposition FF, which Proposition MM would further tighten, were initially projected to raise taxes by $100 million annually, but collections have exceeded that estimated by more than 11%. Those excess collections are the impetus for the other measure on Colorado’s November ballot, Proposition LL.

Proposition LL asks voters to exempt the taxpayer-funded school lunch program from the state’s Taxpayer’s Bill of Rights (TABOR), a more than three-decade-old constitutional taxpayer safeguard that limits the growth of state revenue collections and requires collections exceeding that limit to be refunded to taxpayers. TABOR, despite being weakened by a temporary pause enacted in 2005, has triggered multiple taxpayer refunds in recent years.

“For new taxes, any revenue collected that exceeds the initial estimate for the program must also be returned to voters, unless approved by a ballot measure,” noted analysis of Proposition LL recently published by Independence Institute’s Nash Herman and Jake Fogleman, which added, “Proposition LL is such a measure.” Herman and Fogelman go on to contextualize the size and scope of the tax and spending increases that Propositions LL and MM seek to authorize:

“The 2022 Blue Book estimated that Proposition FF would increase revenue by $100.7 million in FY2023-24. However, the program collected $112 million, or $11.3 million more than initially estimated. Proposition LL, then, asks voters to allow the state to retain and spend the $12.4 million in tax revenue (and interest earned) that was over-collected from taxpayers in FY2023-24. However, Prop LL also fully ‘deTABORs’ Proposition FF revenue moving forward. This means it retains extra tax revenue not only from FY2023-24 but also from all future years.”

“Aside from allowing the retention of program funds, Prop LL enables the state to maintain current deductions at 2025 levels for those earning over $300,000 annually, which would otherwise be increased next year to mitigate overcollection,” Herman and Fogelman added. “The measure would increase state spending by $33 million in FY2025-26 and $67 million in FY2026-27.”

The Independence Institute analysis goes on to point out that the tax hikes enacted by Proposition FF, which Proposition MM seeks to expand, will hit an increasing number of Colorado residents every year. That’s because, while Proposition FF set a $300,000 annual income threshold above which deductions are capped, that $300,000 threshold is not indexed for inflation.

“It is understandable that, over time, incomes increase, and more households will earn over $300,000,” Herman and Fogelman explain. “However, due to inflation, Coloradans earning $300,000 in 2025 have less buying power than those who were making $300,000 in 2022. In fact, those earning $300,000 in 2025 have the same buying power as those making $274,253 in 2022 due to inflation, meaning its tax base is already broader in real terms.”

“This is classic bracket creep,” said Herman. “They sell it as a tax on the wealthy, but every year, more working Coloradans will get swept into the net.”

“This ‘bracket creep’ will inevitably worsen over time,” Herman and Fogelman added. “For example, in ten years, those earning $300,000 in nominal income will only have a purchasing power of approximately $190,000 in 2025 dollars, assuming a 3% inflation rate and a 1.7% growth in real incomes (Colorado’s historical averages).”

Colorado Voters Are Offered Tax Hikes As Texas Voters Consider New Taxpayer Safeguards

While Colorado residents will soon vote on two tax hikes referred to the ballot by their Democrat-led state legislature, Texas voters are set to decide whether to approve a slew of new taxpayer safeguards this November that were referred to the ballot earlier this year by the GOP-led Texas House and Senate. In contrast to the measures on Colorado’s 2025 ballot seeking to expand previously enacted tax and spending increases, many of the 17 propositions on ballots in Texas this year seek to build upon previously enacted tax relief and prohibit new forms of taxation sought by progressives.

Texas already has a constitutional prohibition on a state income tax, which was approved by more than 74% of the electorate in 2019. Proposition 2, a constitutional amendment on this November’s ballot, specifies that state taxation of capital gains is also prohibited in Texas. When signing the joint resolution on May 14 referring the capital gains tax prohibition to the November ballot, Governor Greg Abbott (R-Texas) said he expects voters to approve Proposition 2 and “ensure that we’re not going to have a capital gains tax in Texas.”

Lawmakers, along with policy groups, have advocated financial transaction taxes at both the federal and state level. Proposition 6, if enacted in November, would ensure Texas is a financial transaction tax-free zone by amending the state constitution to bar the imposition of such a levy. Meanwhile, Proposition 8, as the ballot title notes, is a “constitutional amendment to prohibit the legislature from imposing death taxes applicable to a decedent’s property or the transfer of an estate, inheritance, legacy, succession, or gift.”

Aside from Propositions 2, 6, and 8, there are 14 other ballot measures on the Texas ballot this November. Among those 14 other measures are several more that offer additional taxpayer safeguards and tax relief.

Texas voters, who elected the Republican-led legislature that referred the aforementioned measures to the ballot, are expected to approve the new safeguards they’ll be voting on in November. It would be surprising and nationally newsworthy if that were not the case. Likewise, if Colorado voters were to reject the tax and spending increases that the Democrat-led state legislature referred to the November ballot, it would have political reverberations beyond Colorado, particularly in other blue states.