As Coloradans head to the polls this election cycle, they face a pivotal choice that could fundamentally redefine the state’s tax landscape for decades to come. On the ballot are two diametrically opposed measures: Amendment 87, which seeks to dismantle Colorado’s long-standing flat-tax structure in favor of a graduated, progressive system, and Proposition 136, a statutory attempt to cement the state’s current 4.4 percent income tax rate as a permanent ceiling.
The outcome of this contest will determine whether Colorado remains a bastion of tax simplicity and competitiveness or joins a growing movement of states experimenting with higher, progressive levies on high earners and corporations.
The Core Proposals: A Study in Contrasts
The central conflict pits two different economic philosophies against one another. Amendment 87, the more radical of the two, proposes a constitutional amendment to authorize a graduated-rate individual and corporate income tax. Under this plan, the state would move away from its current flat-tax model, imposing new, higher marginal rates: 7.4 percent on income exceeding $500,000, 7.9 percent on income above $750,000, and a top rate of 8.4 percent on income exceeding $1 million.
Crucially, while the authority to tax at these rates would be embedded in the state constitution, the specific rates themselves would be established via an initiated statute. This creates a flexible—or, as critics argue, unstable—fiscal environment where the legislature could adjust brackets and rates with relative ease.
Conversely, Proposition 136 serves as a defensive bulwark. It seeks to statutorily cap both individual and corporate income tax rates at the current 4.4 percent level. While it functions primarily as a political statement of intent, it is intended to signal the public’s preference for the status quo. However, because it is a statutory measure, its legal weight is limited; future legislatures could theoretically repeal it, and it does not supersede the broader constitutional implications of Amendment 87 should both pass.
Chronology: From Progressive Origins to the Flat-Tax Era
To understand the stakes, one must look at Colorado’s history. For much of the 20th century, Colorado employed a graduated-rate income tax. However, in 1987, the state made a historic pivot, becoming the first in the nation to abandon its progressive structure in favor of a single-rate income tax. At the time, the state’s top marginal rate had been 8 percent on income above $10,000 for nearly a quarter-century. The transition to a 5 percent flat rate was viewed as a modernization effort designed to simplify the tax code and stimulate economic activity.
In the nearly four decades since that transition, the flat-tax model has proven remarkably durable. It has been reduced multiple times, landing at its current 4.4 percent rate. This trajectory highlights a core advantage of flat-tax systems: they are inherently easier to manage and, according to proponents, more attractive to cut. Because every taxpayer shares the same marginal rate, there is less opportunity for "bracket creep" or the political maneuvering that often accompanies progressive tax adjustments.
Supporting Data: Small Business and the "Pass-Through" Impact
One of the most contentious aspects of Amendment 87 is its impact on the state’s small business community. Critics of the measure point to the fact that Colorado is home to approximately 731,000 small businesses, which collectively employ nearly 49 percent of the state’s workforce.
The vast majority of these enterprises are "pass-through" entities, such as S corporations, partnerships, and LLCs. In these structures, business income is not taxed at the corporate level; instead, it is reported on the owner’s individual income tax return. Therefore, a tax hike targeting high-income earners effectively serves as a tax on the engine of Colorado’s small business economy.
IRS data underscores this reality: of the 53,640 Colorado filers with an adjusted gross income (AGI) above $500,000—those who would be hit by the new 7.4 percent-plus rates—nearly 31,000 report partnership or S corporation income. Furthermore, data indicates that households earning $500,000 or more derive 27 percent more of their income from business ventures than from traditional wages.
By raising rates on these individuals, the state risks reducing the capital available for reinvestment, hiring, and expansion. Economists emphasize that business decisions are made "on the margin." When the cost of earning an additional dollar increases, owners are statistically more likely to delay capital investment, reduce headcount, or pass the costs on to consumers in the form of higher prices.
Implications: The Risks of High-Rate Experiments
Advocates for fiscal caution point to the "backfire" effect seen in other states that have pursued similar progressive tax policies. In California, the 2012 move to increase top tax rates resulted in a significant erosion of the anticipated revenue gains—by some estimates, as much as 61 percent—due to a combination of out-migration, reduced investment, and tax avoidance strategies.
Similarly, New Jersey’s 2004 decision to implement a top rate of 8.97 percent for high earners was followed by a documented increase in out-migration. In New York, the share of the nation’s millionaires residing in the state plummeted from 12.7 percent in 2010 to 8.7 percent in 2022. The Citizens Budget Commission estimated that New York would have generated an additional $10.7 billion in revenue in 2022 had its share of the nation’s wealthy population remained stable.
These examples suggest that tax policy is not merely a matter of arithmetic; it is a matter of behavioral economics. When tax rates reach a certain threshold, the tax base itself often becomes mobile, leading to a "hollowing out" effect that can ultimately harm the state’s long-term financial health.
The Corporate Tax Component: An Irrelevant Metric?
Amendment 87 also proposes a graduated-rate structure for corporate income. Economists generally view progressive rate schedules for corporations as structurally unsound. The size of a business’s income is rarely a reliable indicator of its shareholders’ wealth. A low-income retiree with a modest 401(k) may own shares in a large corporation, while a high-net-worth individual might be the sole proprietor of a small, struggling business.
Furthermore, Colorado utilizes "single sales factor" apportionment, meaning corporate taxes are largely determined by the percentage of a company’s sales that occur within the state. Consequently, the corporate income tax acts as a de facto tax on sales, which is almost invariably passed on to consumers.
Legal and Administrative Uncertainty
The path to passing Amendment 87 is itself a matter of legal intrigue. Colorado’s constitution generally requires a 55 percent supermajority for constitutional amendments. However, Amendment 87 is drafted to only eliminate existing language prohibiting graduated rates rather than adding new language. This tactical framing is intended to allow the measure to pass with a simple majority.
If both Amendment 87 and Proposition 136 pass, the state will be thrust into a period of deep uncertainty. The measure with the most votes will prevail in the event of a conflict, but the "Blue Book"—Colorado’s official ballot information guide—explicitly acknowledges that the legal consequences of this scenario are unclear. Courts would be forced to determine whether the state’s tax system is constitutionally permitted to be progressive, while simultaneously bound by a statutory cap at 4.4 percent. Such a conflict could paralyze the Department of Revenue and lead to years of litigation.
Conclusion: The Crossroads of Policy
Colorado stands at a fiscal crossroads. On one side lies the promise of revenue growth through a progressive tax structure, a path that proponents believe will fund vital education, healthcare, and childcare initiatives. On the other lies the preservation of the flat-tax model, which supporters argue is the bedrock of the state’s economic competitiveness and a safeguard for its small business sector.
As the state’s economic landscape continues to diverge from the national average, voters must decide which philosophy aligns with their vision for Colorado. Will the state continue its long-standing tradition of tax simplicity, or will it embrace the potential—and the peril—of a new, graduated tax regime? The decision will be etched into the state’s constitution this Election Day, shaping the economic reality for generations of Coloradans.
