Colorado Democrats propose tax tweaks to help working families amid federal policy fallout
Lelia Hobley, a single mother of three who lives in Denver, says a state-level child tax credit is one reason she has reliable transportation, “breathing room” in her budget and the ability to pay for extracurricular activities for her children, including football for her 12-year-old son.
The Colorado Legislature designed that credit, which can range from $123 to over $3,000 per child depending on income level, in 2024 to be triggered if annual state revenue grows at a fast enough rate. That revenue growth is threatened, however, by tax policy passed at the federal level last summer, meaning families like Hobley’s cannot expect the credit for this year at least.
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Democratic lawmakers now want to pass a package of bills to separate state tax policy from the federal changes made in H.R.1 — President Donald Trump’s “One Big Beautiful Bill”— and use the revenue these laws would create to fund a new credit for families. The amount of potential revenue will be clear once nonpartisan legislative staff analyze the fiscal impacts, but it likely will not be enough to fully replace that family affordability tax credit.
“Now more than ever, we have to use this moment to reexamine provisions in our tax law and just make sure that on net, the scales balance out for working people,” Senator Mike Weissman, an Aurora Democrat, said during a Tuesday press conference announcing the bills.
When Congress passed H.R.1 last summer, state tax revenue projections dipped by about $1.2 billion in the current budget year because Colorado’s tax code is tied to federal tax rules. That prompted a special session to raise revenue and cut spending to fix the budget gap. Now, lawmakers are back for the regular legislative session and want to further mitigate the influence of the federal tax code changes.
“One thing we can do is make sure we are not funding tax cuts for people who don’t need them off the backs of people who do need them,” said Senator Judy Amabile, a Boulder Democrat. “The people at the top are going to be OK. They are not going to be hurt by the measures we are taking in these bills.”
The revenue from three bills would be used to fund the new family affordability credit for middle- and lower-income families.
“Supporting working families is something we can all agree matters,” Hobley said. “When our policies reflect the value of hard work, responsibility and opportunity, we create conditions where children can succeed and parents can continue contributing to their communities.”
Millionaire CEO salaries
One of the bills, House Bill 26-1221, would end corporations’ ability to deduct up to $1 million from the salaries of top executives in their state taxable income and reduce how much they could claim as operating loss deductions.
“At a time when people are struggling to pay their rent, groceries and utilities, protecting tax breaks for millionaire CEO salaries instead of tax breaks for working families is a slap in the face of hardworking Coloradans,” said Representative Yara Zokaie, a Fort Collins Democrat.
A second bill, House Bill 26-1222, would split the state tax code from some business tax breaks created in H.R. 1, including a deduction for interest expenses on debt. Businesses could still claim the affected breaks on their federal taxes.
Another bill, House Bill 26-1223, would require sales tax on downloadable software by eliminating an exemption created in 2011. People would have to pay sales tax on software if they buy it online just as they would in a physical store. A 2022 report from the Office of the State Auditor found the revenue impact could be over $80 million annually, with businesses paying about $600 more per year in sales tax.
“It doesn’t make any sense. It’s a patchwork system that doesn’t align with the current way that we make purchases in our modern society,” said Senator Matt Ball, a Denver Democrat.
A fourth bill would aim to clean up the state’s tax code and repeal ineffective tax deductions and exemptions. That revenue would be used to expand tax credits for small food retailers, wildfire mitigation and vacant property rehabilitation. Bill sponsors say it will have a net-zero effect on tax revenue.
