In a year marked by fiscal turbulence and shifting federal policy, Colorado Democrats have launched a two-pronged effort to reshape the state’s tax landscape—one through immediate legislative action, the other through a proposed constitutional amendment that could appear on the 2026 ballot.

The moves come in response to a projected $750 million budget shortfall, largely triggered by federal tax changes enacted earlier this year. These changes reduced the deductibility of state and local taxes for high-income earners, prompting ripple effects across Colorado’s revenue forecasts.

Legislative Measures Passed in August Special Session

During a special session convened in August, Democratic lawmakers passed a series of bills aimed at closing the budget gap without cutting essential services. Key provisions include:

Elimination of tax breaks for owners of pass-through businesses—such as S corporations and partnerships—earning more than $500,000 individually or $1 million jointly.
Repeal of a longstanding tax credit for insurance companies with regional home offices in Colorado.
Reduction of the state’s reserve fund from 15% to 13%, freeing up approximately $200–$300 million for immediate use.

Together, these measures are expected to generate roughly $150 million in new revenue this fiscal year. Democratic leaders framed the changes as necessary steps to stabilize the budget while preserving funding for education, healthcare, and infrastructure.

Proposed Ballot Measure: Graduated Income Tax Amendment

Looking beyond the current fiscal year, a coalition of progressive policy groups—including the Bell Policy Center—is advancing a constitutional amendment to replace Colorado’s flat income tax with a graduated system. The proposal would introduce tiered tax rates based on income:

If approved, the measure could raise over $2 billion annually, earmarked for public education, healthcare expansion, and community safety initiatives. Supporters argue the reform would make Colorado’s tax code more equitable and responsive to economic disparities.

To qualify for the November 2026 ballot, organizers must gather at least 125,000 valid signatures and secure 55% voter approval, as required for constitutional amendments under the Taxpayer’s Bill of Rights (TABOR).

Political Landscape and Public Response

Republican lawmakers and business groups have voiced strong opposition to both efforts, warning that increased taxes could deter investment and burden small businesses. Meanwhile, Democratic leaders maintain that the reforms are essential to modernizing Colorado’s fiscal framework and addressing long-standing inequities.

Governor Jared Polis has not yet taken a formal position on the ballot initiative but expressed support for “fiscally responsible solutions” during the special session.

As the debate unfolds, Colorado voters may face a pivotal choice in 2026: whether to uphold the state’s flat-tax tradition or embrace a more progressive model aimed at redistributing resources and funding public priorities.

©️ The Rocky Mountain Dispatch LLC. 2025