Colorado taxpayer refunds will nearly double as state revenue surges
Colorado taxpayers will see a $750 refund this summer, an increase from initial projections of $400, according to a legislative economic forecast released Tuesday.
Driving the news: An unexpected surge in income tax collections led to a 21.8% increase in discretionary revenue available in the state budget — the greatest one-year increase in at least two decades.
Be smart: Much of the surplus revenue exceeds the limits in the state's Taxpayer Bill of Rights — meaning it must go back to taxpayers through refund checks and an extension of the temporary decrease in the state's income tax to 4.5%.
- TABOR refunds will total $3.65 billion this fiscal year, which is "far and away the largest amount we've ever refunded," chief legislative economist Greg Sobetski told state lawmakers as he presented the new numbers.
- The refund is $1.56 billion more than what lawmakers anticipated from the March economic forecast.
Between the lines: The refunds typically are issued when taxpayers file returns in the new calendar year, but Gov. Jared Polis and Democratic lawmakers championed legislation to distribute them in August and September — just ahead of the 2022 election.
- Individuals are now projected to get $750, while joint filers will receive $1,500.
The big picture: Colorado's economy is recovering faster than the rest of the nation, particularly when it comes to job growth, but other states are seeing similar upside surprises in tax collections.
- In Michigan, revenue projections increased $2.8 billion, or 21%, while Oregon upped their income tax predictions by 17% in June and 10% in New Jersey, economists reported.
- Rising inflation and lower consumer demand are expected to slow economic growth in Colorado and elsewhere.
The state anticipates issuing an additional $3 billion in refunds in 2023 because tax revenues will continue to exceed TABOR caps in the fiscal year that starts July 1.
Yes, but: Huge taxpayer refunds will have major implications on the Colorado budget.
- In the next budget year, the amount available to spend will remain static, meaning the state will struggle to meet increases in costs related to inflation.
- That will also lead to a $191 million deficit — meaning they will be unable to put 15% in reserve accounts as law requires.
What they're saying: The state's economic picture is clouded with uncertainty and an "elevated risk of recession," said legislative economist David Hansen.
- "We see about a 1 in 3 chance of … a recession over the next 18 months,” added Bryce Cook, chief economist in the governor’s Office of State Planning and Budgeting.
By the numbers: In the Denver metro, legislative economists expect inflation to outpace wage growth and average 7.9% this year, 4.6% in 2023 and 3.1% in 2024.
- The governor's economists predict an even higher peak at 8.2% this year.
What to watch: The state's revenue deposited in the general fund for discretionary spending increased 21.8% this fiscal year, which ends June 30.
- In the next two budget years, it's expected to remain flat — representing a decrease in purchasing power, given inflation pressures.
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