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
December 20, 2017
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.