Permanent tax cuts a boon to state economy

After flirting with the foolish idea of a temporary income tax cut, the General Assembly has finally come to its senses and endorsed Gov. Bill Owens' permanent tax cut proposal. It seems that, at long last, Coloradans will get a well-deserved reduction in their tax burden, and an income tax cut is the best way to do it.

Recent revenue forecasts show that our state government is expected to collect taxes and revenues in excess of $3 billion more than it can legally spend in the next five years. The TABOR amendment requires that this money must be returned to the taxpayers. This income tax reduction is the best way do it because it avoids collecting the money from taxpayers in the first place. But these tax- cuts are about more than returning excess money to the taxpayers.

By every possible measure, the combined tax burden on Coloradans has grown excessive. According to the non-partisan Tax Foundation, taxes now consume nearly 40 percent of the average Colorado family's income. In fact, taxes now consume a larger portion of the family budget than housing, transportation, and even food. This tax cut is a small step in reducing that burden.

Still, opponents of this tax cut have claimed that, among other things, it will put a strain on the budget when these budget surpluses cease. However, for the following reason, this fear is overstated. When the government reduces the tax burden, people and businesses get to keep more of their money. Incentives are created across our economy to save, invest and engage in productive activity. As a result, income is increased and the tax base grows larger and partially offsets the effects of tax cuts on revenues.

Moreover, claims by several Democratic legislators that an income tax cut would disproportionately benefit the rich are unfounded. Under Colorado's flat-tax-based income tax, every taxpayer will receive an equal percentage reduction in their taxes. Now Democrats have taken issue because in pure dollar amounts the wealthy will receive a large portion of this tax cut, while the poor will see very little of this tax cut. But this is a dubious complaint based solely on class warfare. Yes, the wealthy will see the greatest benefit from this tax cut, but this is only because they shoulder a larger portion of the tax burden. As for the poor, it is difficult to feel sympathy over the likelihood that they will not benefit from this income tax cut;they don't pay it in the first place.

If anything negative can be said about the income tax reduction is that it is perhaps too small. This proposal reduces the income tax burden by a minuscule 5 percent. With an expected $3 billion in budget surpluses in the next five years, there is no question that our budget can afford even more significant reductions in the income tax in coming years.

However, this is a good start to what should become a tax-cutting renaissance in Colorado. With a Republican governor and a Republican- controlled state Legislature, there is no reason why we cannot continue to streamline our state government and return these savings to the taxpayers with reduced taxes. Remember, in the past five years, Colorado has had the dubious distinction on being one of only a few states in the nation that did not enact significant tax reductions.

In the end, the gargantuan budget surplus demanded a tax cut. Indeed, with budget surpluses projected to continue for the next several years, there was simply no justification for refusing to grant permanent tax relief. Yet, legislators would do well to remember some advice for future legislative sessions. Tax cuts are not just about returning excess revenue. Refunds can do that adequately. Tax cuts are about reducing the burden that taxes place on the the personal finances of every taxpayer. And, even more so, the influence that government has on our everyday lives. Anytime legislators have that type of opportunity they would be foolish to forsake it.

- Baker is a research fellow with the Independence Institute in Golden.

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