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House Bill 1203 could mean hundreds of dollars in extra cash for many low- and middle-income families.EXPAND
House Bill 1203 could mean hundreds of dollars in extra cash for many low- and middle-income families.
Evan Semón

Colorado Democrats Push Expanded Tax Credits for Working Families

Kayla Frawley fought back tears as she talked about the financial challenges she faces as a single mom dealing with the rising cost of child care and other living expenses in Colorado.

"I pay more for preschool than I do for housing," Frawley said at a press conference at the State Capitol on Monday, March 3. "My kiddo loves his preschool, it's quality, it's going to prepare him for kindergarten. It's just become hard, because I have to go into debt every single month to make sure that I can pay for it."

Frawley and other working parents in Colorado could soon get relief in the form of House Bill 1203, a proposal backed by Democratic lawmakers to tweak the state's tax code and put more money in the pockets of low- and middle-income families.

"I've done the math, and if this bill passes, I wouldn't have to go into debt," Frawley said. "It'll give me just a tiny bit to make sure I don't have to worry about my kiddo having to switch schools or leave preschool."

The bill, introduced in January, would both expand Colorado's state-level Earned Income Tax Credit (EITC), which typically benefits families with annual incomes below $56,000, and trigger its dormant Child Tax Credit (CTC), which would benefit low- and middle-income families with children under five. Colorado's state-level CTC was passed into law in 2013 but never funded.

While Colorado's EITC and CTC are much smaller than their federal counterparts, the change would still mean hundreds of dollars in budgeting breathing room for hundreds of thousands of Colorado filers. To offset the $150 million cost of expanding the tax credits, HB 1203 proposes the elimination of a deduction for "pass-through" income, which mostly benefits business owners making $200,000 a year or more. That "loophole" in Colorado's tax code, as the bill's supporters call it, resulted from changes made at the federal level in Republicans' 2017 tax overhaul.

"This loophole gives about two-thirds of the benefits to the richest 5 percent of business owners," said Senator Julie Gonzales, citing research from the Tax Policy Center. "That's simply what House Bill 1203 seeks to do — to fix that loophole, and then use the money to pass those savings on to working families, to folks who are doing the work of making our economy strong."

Supporters of the bill include the Colorado People's Alliance, the Bell Policy Center and the Colorado Fiscal Institute, a liberal group that has crusaded for years against a state tax code that it says is outdated and regressive. Esther Turcios, CFI's legislative policy manager, pointed to an analysis showing that while a typical Colorado family making $50,000 pays roughly 9 percent of its income in taxes, families with incomes above $200,000 pay less than 7 percent.

"But just like our tax system has been used to provide benefits to a select few, it can also be changed and used to promote fairness and ensure that all Coloradans have the opportunity to get ahead," Turcios said. "The Earned Income Tax Credit and the Child Tax Credit are two of the most powerful tools that we can use to rewrite our upside-down tax code."

Later on March 2, the House Finance Committee advanced HB 1203 on a 7-4 vote, with all Republican committee members opposed. Democratic sponsors say they're hopeful that Governor Jared Polis, who has clashed with progressives over tax policy in the past, will support the bill — and working parents like Kayla Frawley are counting on it.

"I know that my story is not unique, that in fact thousands of Colorado families share that same story," she said. "This bill is one tiny solution to such an incredible issue that so many working Colorado families face."

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