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Monday, December 3, 2012

Tax system modernization recommendation in Colorado

Recently, TBD Colorado, a non-partisan, community group issued a report (11/14/12) with various recommendations to help improve the state's tax system, budget, education, transportation, workforce and health care.  I like the tax system recommendation as it seems to be getting at the need to modernize and update the system.  The recommendation states:

"Consider changes to the tax code so that it more accurately reflects Colorado’s underlying economy. Some of the fastest growing sectors of the economy are either exempt or taxed at a lower rate than others. Changes to the tax system that are revenue neutral on a current basis, reduce marginal rates, exemptions and deductions, but simplify the tax code and broaden the tax base should be considered."

There is not much detail in the report on what is exempt. But a review of Colorado sales tax rules shows that while electronically delivered software is taxable, there is no tax on digital goods or most services. These are growing sectors of the economy. Broadening the tax base to include these items when sold to individual consumers, would be more equitable and allow for a lower tax rate.

I also like their last sentence which needs to be said more often at state and federal levels .... a tax system with a broader base is more likely to meet principles of good tax policy such as equity, neutrality, efficiency, transparency and simplicity.

Unfortunately, these wasn't said enough in California which after the recent election ended up with increased rates for the personal income tax and sales tax which exacerbate problems such as PIT volatility, and inequities in the sales tax.  California's tax problems are with its tax bases, not the rates which were already high.  But I'll save that analysis for a blog post on another day soon.

But in the meantime - nice job by TBD Colorado and the citizens involved with the report in identifying how to truly improve a tax system.

What do you think?

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