Child Tax Credit Bill

Let’s talk about the Child Tax Credit bill, HB 16-1045 (as of 2/9/16). This is one of those simple bills that has far more content than meets the eye.

To start this analysis, we’re going to have to look back at a bill passed in 2013, SB 13-001. Senate Bill 001 was called the “Colorado Working Families Economic Opportunity Act of 2013.”

Colorado’s then-current Earned Income Tax Credit (EITC) was implemented only when the Taxpayer’s Bill of Rights amendment to the Colorado Constitution forced the state to return excess tax revenues to the people. Put more simply, the EITC was only given to families when the state has extra money to give back to Colorado residents.

This bill aimed to change that and make a permanent and refundable Child Tax Credit, which means the tax credit could return the entire income tax liability of a taxpayer — and give them even more! For example, if I owed  $200 to the state, but the EITC was $500, I would come out with $300 in profit! It is — quite literally — free money.

The sponsors claimed that the problem with Colorado’s EITC is that it was only triggered when the state had excess revenue. SB 13-001 would trigger the tax credit every year, whether the state had excess revenue or not. But the state had to find more money to pay for the tax credit. If it had no excess revenue (the mechanism that originally triggered the credit), the money had to come from somewhere else.

The legislature “found” that money in a federal bill, the “Marketplace Fairness Act of 2013”. This bill enabled states to collect sales and use taxes from retailers that had no physical presence in the state, like Amazon and other e-retailers. This bill would give the state the necessary revenue to pay for the permanent child tax credit.

There’s only one problem: Congress still hasn’t passed the Marketplace Fairness Act of 2013, so the state hasn’t issued the tax credit.

Enter Child Tax Credit bill HB 16-1045. Not satisfied with Congress’ inaction on the internet tax bill, state legislators introduced a bill that would repeal the section of SB 13-001 requiring the passage of the Marketplace Fairness Act of 2013.

The original bill estimated that the state would spend roughly $11.4 million, $23.0 million, and $23.3 million in Fiscal Years 2014, 2015, and 2016 respectively.

The new bill estimates expenditures of $33.3 million, $67.2 million, and $68.3 million in Fiscal Years 2016, 2017, and 2018 respectively.

Ignoring the sky-high costs of this permanent tax credit, it’s important to note that the current estimate for FY 2016 — the remaining half of the year — to be $10.0 million over the original estimate. The fiscal analysts were off by 200%! Estimates for the next two years are over six times the original estimate for 2013 and triple the estimate for 2016.

To recap the entire saga, legislators wanted a permanent tax credit and paid for it through internet sales taxes. When the internet sales tax bill didn’t pass Congress, legislators thought, Oh well, let’s just spend the money anyway. The cost has tripled, additional revenue has not be raised, and legislators think this is a good use of tax revenue.

This at a time when legislators need more money for transportation and education but claim “Revenue is the only problem.”