As voters head to the polls this Election Day, Coloradans will face a consequential choice regarding the future of the state’s tax system, with two competing ballot measures offering sharply contrasting visions for income taxation. The outcome will determine whether Colorado maintains its nearly four-decade-old commitment to a single-rate income tax or pivots toward a progressive, graduated-rate structure while simultaneously navigating potential legal ambiguities.
The upcoming election features two primary measures: an initiated statute that would permanently cap individual and corporate income taxes at the current 4.4 percent rate, and a constitutional amendment paired with an initiated statute that would authorize and implement a graduated-rate income tax system with a top rate reaching 8.4 percent.
The Push for a Graduated-Rate System Under Amendment 87
Under Amendment 87, Colorado’s constitution would be altered to permit a graduated-rate individual and corporate income tax. The accompanying initiated statute would immediately establish new, higher tax brackets for high-income earners and corporations. Under this schedule, rates would be set at 7.4 percent for income above $500,000, 7.9 percent for income above $750,000, and 8.4 percent for income exceeding $1 million. Crucially, while the initial rate schedule would be set by statute, the underlying authorization for a graduated-rate tax would be enshrined in the constitution, granting the state legislature the power to alter rates and brackets at any time in the future.
Proponents of the measure argue the changes will generate vital revenue for education, healthcare, and childcare initiatives. However, tax policy analysts have highlighted structural flaws within the proposal, notably an extreme marriage penalty. Because the income bracket widths are identical for single filers and married couples filing jointly, married households face steep tax penalties. For instance, a married couple earning $25,000 each would face a marriage penalty of $125, while a couple where each spouse earns $500,000 would face a marriage penalty totaling $16,575.
Colorado’s Tax History and the Flat Tax Evolution
Colorado’s history with income taxation offers important context for the current debate. The state maintained a graduated-rate income tax until 1987, when it made history by becoming the first state in the nation to transition from a graduated-rate structure to a single-rate, flat tax. Prior to that historic shift, Colorado’s top marginal rate had been fixed at 8 percent on income above $10,000 for 24 years. When the state switched, the new top rate was established at 5 percent—a rate that had previously served as the marginal rate for income between $4,000 and $5,000.
In the decades since, the flat tax rate has been steadily reduced through various legislative and voter-approved measures, eventually settling at its current level of 4.4 percent. Advocates of flat tax systems frequently point to this downward trajectory as a key feature, arguing that a single rate applied uniformly across all income is politically more difficult to raise and inherently more attractive to cut.
To bypass Colorado’s usual procedural hurdles, Amendment 87 employs a specific drafting strategy. Currently, the state constitution mandates that all taxable net income be taxed at a single rate, barring specific credits and surcharges. Amendment 87 amends this provision by removing language rather than adding new restrictions, effectively eliminating the prohibition on a graduated-rate schedule. By relying solely on the deletion of text rather than the addition of new constitutional mandates, the amendment can be ratified with a simple majority vote, circumventing the 55 percent voter approval threshold typically required for constitutional amendments in Colorado.
Impact on Small Businesses and Entrepreneurship
A central point of contention in the debate over Amendment 87 is its direct effect on small businesses. Colorado is home to approximately 731,000 small businesses that employ nearly 49 percent of the state’s workforce. The vast majority of these enterprises operate as pass-through entities—such as S corporations, partnerships, and limited liability companies (LLCs)—meaning their business income flows through to the individual income tax returns of the owners.
Internal Revenue Service data underscores the heavy overlap between high-income earners and small business ownership in the state. Among Colorado’s 53,640 tax filers with adjusted gross incomes above $500,000, some 30,850 receive partnership or S corporation income, while another 14,310 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, higher marginal rates on incomes exceeding $500,000 function largely as a direct tax on small business ownership and investment.
Critics of the graduated tax proposal warn that increased tax burdens would erode small business profitability, placing Colorado enterprises at a competitive disadvantage against out-of-state competitors. Economic theory suggests that business owners, facing higher marginal tax rates on the next dollar earned, may scale back expansion plans, delay capital investments, hire fewer workers, or attempt to pass increased costs onto consumers through higher prices, depending on competitive market conditions.
Furthermore, tax experts note that higher tax brackets capture many individuals who are not traditionally wealthy in a sustained sense. Many filers report incomes of $500,000 or more only once or twice in a lifetime—such as when they sell a family business, a farm, or an investment property after decades of labor. For these individuals, a high marginal surtax acts as a heavy penalty on the accumulated return of many years of entrepreneurship, risk-taking, and retirement planning.
Experiences in other states that implemented similar high-income surtaxes serve as a cautionary tale for opponents of Amendment 87. In California, where voters approved top-rate increases in 2012, a combination of taxpayer out-migration, reduced in-state investment, slower economic growth, and aggressive tax avoidance strategies eroded an estimated 61 percent of the anticipated revenue gains. In New Jersey, a treasury department study assessed that the 2004 adoption of an 8.97 percent top rate on incomes above $500,000 accelerated the out-migration of taxpayers by 20,000 over a five-year period. Similarly, research from the Citizens Budget Commission in New York showed that the state’s share of the nation’s millionaires dropped significantly between 2010 and 2022, resulting in billions of dollars in unrealized individual income tax revenue.
Corporate Income Tax and Apportionment Concerns
Amendment 87 also introduces a graduated-rate structure for corporate income taxes. Tax economists have frequently questioned the rationale behind progressive rate schedules for corporate entities, noting that the size of a corporation has little bearing on the personal wealth of its shareholders. Low-income households often hold shares of large multinational corporations through retirement vehicles like 401(k) plans, while wealthy individuals may hold ownership stakes in small, closely held corporations.
Compounding this issue, Colorado utilizes a single sales factor apportionment formula for corporate taxation, meaning corporations are taxed based strictly on the share of their sales originating within the state. As a result, economists point out that corporate income taxes effectively operate as a tax on sales into the state, ultimately manifesting as higher prices for consumers rather than costs absorbed solely by corporate investors.
Proposition 136 and the Ballot Box Conflict
In direct opposition to Amendment 87, Proposition 136 offers voters an alternative approach. This statutory measure would cap individual and corporate income tax rates at their current level of 4.4 percent. Because it is structured as a statute, Proposition 136 requires only a simple majority to pass, though it is not legally permanent; future legislatures could amend it, and voters could repeal it through subsequent ballot measures. Its primary legal weight stems from existing Taxpayer’s Bill of Rights (TABOR) protections, which already mandate voter approval for any tax rate increase. Proposition 136 serves primarily as a direct legislative and policy counterweight to Amendment 87.
The presence of both measures on the ballot creates a potential procedural conflict. Under Colorado election law, if two competing measures pass, the one that receives the most votes prevails on conflicting provisions. Should both Amendment 87 and Proposition 136 pass, but with Proposition 136 securing more votes, the outcome remains legally murky. A straightforward reading could suggest that Proposition 136 would strike down tax rates above 4.4 percent while leaving the constitutional authorization for a graduated tax intact, potentially creating textual contradictions that courts would be forced to untangle. Colorado’s official ballot information book, the "Blue Book," explicitly acknowledges that the legal consequences of such an overlapping outcome are unclear and would ultimately require judicial resolution.
As Colorado voters weigh these choices, the state stands at a crossroads. While maintaining a 4.4 percent flat tax keeps Colorado competitive with regional peers that have lowered income taxes in recent years, the approval of Amendment 87 would steer the state toward a progressive tax model, deepening a growing national divergence in state tax policy.
