DENVER — When Coloradans head to the polls this Election Day, they will confront a monumental fiscal crossroads that could fundamentally reshape the state’s economic landscape for decades. Voters are tasked with deciding the fate of two directly competing ballot measures concerning individual and corporate income taxes.
The outcome will determine whether Colorado remains committed to the flat-tax model it pioneered nearly 40 years ago or pivots aggressively toward a progressive, graduated-rate tax structure featuring some of the highest marginal rates in the region.
The competing proposals—designated as Amendment 87 and Proposition 136—offer starkly different visions for the state’s economy, impacting everything from small business competitiveness and family tax burdens to state revenue stability and legal battles over constitutional interpretation.
Main Facts: The Competing Proposals
At the center of the November ballot are two distinct mechanisms designed to steer Colorado’s tax policy in opposite directions:
- Amendment 87 (Constitutional Amendment and Initiated Statute): This measure seeks to fundamentally rewrite Colorado’s tax code by amending the state constitution to authorize a graduated-rate individual and corporate income tax. Paired with an initiated statute, it would immediately establish new, higher marginal tax rates: 7.4 percent on income above $500,000, 7.9 percent on income above $750,000, and 8.4 percent on income above $1 million. Crucially, while the initial brackets and rates are set by statute, the constitutional authorization would allow the legislature to adjust these rates and create new brackets at any time by a majority vote.
- Proposition 136 (Initiated Statute): Serving as a direct counterweight, this measure would statutorily cap both individual and corporate income tax rates at their current level of 4.4 percent. Because it is a statutory change requiring only a simple majority to pass, its legal durability is limited compared to constitutional measures, yet it functions primarily as a policy referendum against Amendment 87.
If both measures pass, legal experts warn of severe conflicts. Under Colorado law, the measure receiving the highest number of votes prevails on conflicting provisions. However, because of the specific wording of Amendment 87’s statutes and Proposition 136’s strict 4.4 percent cap, a scenario where both pass could trigger extensive and unpredictable judicial intervention. The state’s official voter information guide, the "Blue Book," explicitly acknowledges that the legal outcome of such a dual-approval scenario is entirely unclear.
Chronology: From Progressive Origins to a Flat Tax and Back
To understand the weight of this year’s ballot measures, it is necessary to examine Colorado’s unique fiscal history.
- Pre-1987: For decades, Colorado operated under a graduated-rate income tax system. For 24 years leading up to 1987, the state’s top marginal rate was fixed at 8 percent on income exceeding $10,000.
- 1987: Colorado made national fiscal history by becoming the first U.S. state to transition away from a progressive income tax system in favor of a single, flat-rate income tax. During this transition, the top rate was slashed to 5 percent—a figure that had previously served as the marginal rate for middle-income earners making between $4,000 and $5,000 (roughly equivalent to $12,200 to $15,250 in today’s dollars).
- Decades Following: Over the ensuing decades, the flat tax rate saw multiple reductions, driven by the structural political dynamic inherent to flat taxes: applying a uniform rate to all income makes broad-based tax hikes politically difficult while rendering rate cuts universally attractive to the electorate. Today, that rate sits at 4.4 percent.
- Present Day: Amendment 87 attempts to dismantle the 1987 reform. By carefully crafting the constitutional change to eliminate existing restrictive language rather than add new text, proponents found a legal pathway to bypass the usual 55 percent voter approval threshold required for constitutional amendments, allowing it to move forward with a simple majority.
Supporting Data: The Impact on Families and Small Businesses
Proponents of Amendment 87 argue the tax hikes will only affect high earners and corporations, generating vital revenue for education, healthcare, and childcare. However, economic data reveals a much broader and more complex web of economic consequences.
The Marriage Penalty
Amendment 87 embeds a severe marriage penalty into its tax brackets because the bracket widths are identical for single filers and married couples filing jointly.
- A married couple earning $25,000 each faces a marriage penalty of $125.
- At the higher end of the scale, a married couple where both spouses earn $500,000 faces an onerous marriage penalty of $16,575.
Small Business Exposure
A common misconception is that high-income taxes target only traditional corporate executives or wealthy wage earners. In Colorado, the reality of small business ownership ties directly to individual income tax returns.
Colorado boasts approximately 731,000 small businesses, which employ nearly 49 percent of the state’s workforce. The vast majority of these enterprises are structured as "pass-through" entities—such as S corporations, partnerships, and limited liability companies (LLCs)—meaning their business income passes directly through to the owners’ individual income tax returns.
Internal Revenue Service (IRS) data highlights this deep connection:
- Out of the state’s 53,640 filers reporting adjusted gross incomes above $500,000, over 30,850 receive partnership or S corporation income.
- An additional 14,310 filers report other business or professional income.
- On average, households earning $500,000 or more derive 27 percent more of their income from business operations than from traditional wages.
Consequently, raising the top individual income tax brackets functions largely as a direct tax increase on small business profitability.
Furthermore, many filers reach the $500,000 threshold only once or twice in their lifetimes—such as when they liquidate a small business or sell a long-held investment property. For these individuals, the proposed progressive structure operates not as a recurring tax on the wealthy, but as a punishing surtax on the culmination of decades of entrepreneurial risk-taking and retirement savings.
Official Responses and Stakeholder Perspectives
The debate over Amendments 87 and Proposition 136 has fractured the state’s political and business communities, drawing sharp lines between advocacy groups, labor organizations, and economic analysts.
Proponents of Amendment 87 contend that Colorado’s current tax structure is regressive, placing an unfair burden on low- and middle-income families while underfunding core public services. Supporters emphasize that the revenue generated by the top-tier brackets—scaling up to 8.4 percent—is strictly earmarked to bolster public education, expand healthcare access, and invest in early childhood care and education. They argue that asking high-income earners and large corporations to contribute a greater share is a necessary and equitable step to support the state’s social infrastructure.
Opponents, including business coalitions and fiscal watchdogs, argue that the measures will severely damage Colorado’s economic competitiveness. Business leaders point out that economic decisions are made "on the margin"—meaning that when taxes on the next dollar of income increase, business owners are compelled to pull back. Rather than absorbing the cost, owners are likely to slow down hiring, delay essential capital investments, scale back expansion plans, or attempt to pass increased costs onto consumers through higher prices.
Critics of the corporate tax hike within Amendment 87 also note the economic absurdity of applying a progressive rate schedule to corporate income. Because a corporation’s size bears little correlation to the personal wealth of its shareholders—a low-income worker might hold shares in a massive multinational corporation via a 401(k), while a wealthy individual might own a stake in a small local corporation—progressive corporate rates miss their mark. Furthermore, because Colorado utilizes single sales factor apportionment, the corporate income tax functions primarily as a tax on sales within the state, translating directly into higher consumer prices.
Broader Implications: Lessons from Other States
Economic research into similar tax hikes in other states provides a cautionary tale regarding the potential fallout of adopting high top-tier rates. History demonstrates that high earners and mobile businesses frequently alter their behavior in response to aggressive tax code changes, often eroding projected revenue gains:
- California: Following voter-approved increases to top income tax rates in 2012, a combination of out-migration, reduced in-state investment, slower economic growth, and sophisticated tax avoidance strategies eroded an estimated 61 percent of the anticipated revenue gains, simultaneously inflicting broader damage on the state’s economic momentum.
- New Jersey: A state Treasury assessment following the 2004 implementation of an 8.97 percent top tax rate on incomes over $500,000 revealed that the policy accelerated out-migration, driving roughly 20,000 residents out of the state over the subsequent five-year period.
- New York: Research from the Citizens Budget Commission found that New York’s share of the nation’s millionaires dropped precipitously from 12.7 percent in 2010 to 8.7 percent in 2022. The study estimated that had the state retained its historical share of high-wealth individuals, it would have collected an additional $10.7 billion in individual income tax revenue in 2022 alone.
The Regional Divergence
At 4.4 percent, Colorado currently maintains a competitive tax posture relative to regional peers, many of which have systematically reduced income tax rates in recent years to attract talent and capital.
Across the United States, states are rapidly diverging into two distinct camps: those aggressively pursuing low, flat tax rates to stimulate economic growth, and a smaller cohort doubling down on progressive, high-rate structures to fund expansive government programs.
On Election Day, Colorado voters will cast their ballots to determine which side of this national divide their state will occupy for the foreseeable future.
