Amendment 66 economic outcomes projected to be neutral in the long run

Amendment 66 could have a neutral economic impact on the state of Colorado, according to an analysis by the Department of Economics at Colorado State University.

The November 5 ballot measure would increase state income taxes to raise $950 million a year for P-12 education.  Colorado’s current personal income tax rate is 4.63 percent.  Amendment 66 would increases the tax rate for those with an income of up to $75,000 to 5 percent and to 5.9 percent on the portion of income above $75,000 annually.

An economic model developed by a research team at CSU was used to examine how Amendment 66 could affect the state economy, looking at both short- and long-run effects.

“As you might expect with any proposed tax increase, there is a short-term drag on the state’s economic activity,” said Martin Shields, economics professor at CSU. “Our simulations, however, showed that potential productivity gains created by increased investments in our P-12 education system could, over the long-term, certainly offset any losses caused by increased tax rates.”

In the short-term, the study by Shields and co-author Harvey Cutler, also a CSU economics professor, found that higher personal income tax rates will decrease the amount of disposable income available to Colorado households, triggering reductions in overall spending that will contract some sectors of the economy.

But there are two factors, the research found, that contribute to potentially offsetting those contractions.

“Government spending on new teachers and educational equipment would have a stimulative effect on the Colorado economy,” Shields said. “That’s likely not enough alone to offset the impact of higher taxes, but there is also a body of evidence from other states which suggests that additional spending on education leads to increased graduation rates and better individual performance. If Colorado were to realize similar benefits, even if they are modest, our analysis shows that there would likely be increases in productivity and economic growth rates.”

Another key finding is that lower and middle-income households will be the largest beneficiaries in the long-term, primarily because of higher wages due to increased worker productivity.

The economic analysis of Amendment 66 is available at the link below.