Wednesday, October 6, 2010

Colorado's income tax rate lower than most states

Our pals at the Public Assets Institute in Vermont came out with some fascinating research last month about the "effective tax rate" on income in each of the 50 states. It's tough to compare income tax rates across states because the states' tax systems are structured quite differently. Vermont, for example, has a progressive income tax system -- higher tax rates are applied to higher levels of taxable income. The income tax rate is flat in Colorado -- 4.63 percent on taxable income for people who make $40,000 or $4 million per year.

That's where comparing effective tax rates becomes useful. Researchers at the Public Assets Institute calculated the effective tax rate by dividing total income taxes paid by the total of residents' adjusted gross incomes. The resulting percentage offers a fair comparison of effective tax rates among the states, and there's considerable variation.

Oregon is No. 1, with an effective income tax rate of 7 percent. Seven states have no income tax, so their effective rate is 0 percent: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

And where does Colorado come out? We are ranked No. 29, with an effective income tax rate of 3.6 percent. That rate is lower than 28 other states.

Low tax rates are a point of pride for many Coloradans. But our low tax rates are also a direct cause of Colorado's perpetual fiscal crisis, which is likely to get much worse in the next year or so.

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