Why the newly passed federal tax cut will mean higher state taxes for some in Colorado | AspenTimes.com

Why the newly passed federal tax cut will mean higher state taxes for some in Colorado

The counter-intuitive result could generate between $215 million and $340 million next fiscal year

Brian Eason
The Denver Post

In this Dec. 4, 2017, photo, part of the Republican Senate bill "Tax Cuts and Jobs Act" is photographed in Washington. Republican tax legislation advancing toward final votes in Congress could undermine “Obamacare” health insurance markets, and add to the financial squeeze on Medicare over time. This week lawmakers will try to resolve differences between House and Senate versions in hopes of finishing around Christmas. Also in play are the tax deduction for people with high medical expenses, and a tax credit for drug makers that develop treatments for diseases affecting relatively few patients. (AP Photo/Jon Elswick)

The $1.5 trillion federal tax cut bill awaiting President Donald Trump’s signature will cause a de facto state tax hike for some Coloradans, state budget forecasters said Wednesday, news that could be viewed as an unexpected Christmas gift for state budget writers, or as a lump of coal for those who will foot the bill.

The counterintuitive result could generate between $218 million and $340 million next fiscal year under separate quarterly revenue forecasts released Wednesday, an unexpected windfall that immediately raised hopes for more transportation funding in the 2018-19 state budget.

The explanation comes down to how the state calculates its income taxes:

State income taxes are a flat 4.63 percent of federal taxable income. And while the Republican tax bill would cut federal income taxes, it also eliminates or caps a number of deductions, resulting in a broader tax base. The net result at a federal level is lower taxes for most individuals, because a drop in tax rates will more than offset the lost deductions in most cases.

 But in Colorado, state income tax collections would grow, because the tax rate of 4.63 won’t change, while the base — the amount of income that is considered taxable — grows because of fewer deductions.

Read the full story on denverpost.com.