Thank You, TABOR: Colorado Owes $1.7 Billion to Taxpayers

For the fourth straight year, Colorado taxpayers are set to receive refunds under the state’s Taxpayers Bill of Rights, or TABOR. In total, about $1.7 billion will be refunded next year. These refunds are required by TABOR which was adopted as an amendment to the Colorado Constitution in 1992.

TABOR is the gold-standard of Tax and Expenditure Limitations, a type of policy that imposes limits on the amount of money government can tax and spend. TABOR limits the growth of state revenue to a rate of population growth plus inflation. For example, in 2023 the population growth in Colorado to 0.7% and inflation was 3.5%, leading to a total allowable growth rate of 4.2%. That growth rate is applied to the previous year’s limit to calculate the new limit. Any money collected over the limit must be returned to taxpayers. This mechanism ensures that the growth of government does not exceed the growth of the economy.

TABOR has helped keep Colorado competitive over the 32 years since its implementation. Not only has kept government spending in check, but it has signaled a long-term commitment to state fiscal responsibility. This makes Colorado an attractive place for businesses and people to locate because they know the state is committed to keeping government growth in check. As Americans “vote with their feet” and relocate to the states providing the greatest economic opportunity, Colorado has been one of the biggest recipients of inbound domestic migration.

The Centennial State’s competitiveness has been documented in the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index over 17 years. Rich States, Poor States considers 15 economic policy variables that are essential to economic competitiveness, such as personal income taxes, property taxes, and Right-to-Work policy. In previous versions of the report, Colorado has ranked as high as second, though it has fallen to 17th in the latest rankings as other policies like increased minimum wages have hurt competitiveness. Still, TABOR has improved the state’s economic fortunes and kept it in the top half of states.

Legislation passed in Colorado earlier this year provides additional routes for state government to return revenues over the limit to taxpayers. Triggers are in place to automatically reduce income and sales taxes by certain amounts based on the size of the surplus. For fiscal year 2024, the surplus is large enough to reduce the state’s flat personal income tax rate to 4.25% and the state sales taxes by 0.13 points. In addition, Coloradans will receive sales tax refunds up to $1,142 based on their income and tax filing status when they file their taxes next year.

TABOR has led to billions of dollars in taxpayer savings in the Centennial state. Once the $1.7 billion is returned to taxpayers next year, Coloradans will have been refunded a total of $9.4 billion over four years of consecutive refunds. This is money that would have otherwise gone to the growth of government, but by returning money to taxpayers, the state enables more growth in the free market. The ALEC Fiscal Rules Project has documented similar tax and expenditure limitations around the country and provides information on how taxpayers in other states could save if their state had a policy like Colorado’s TABOR.