11/25/2009 06:56 pm ET | Updated May 25, 2011

The Cost of Tax Favoritism

The worst economic downturn in 70 years is taking its toll on the state revenue, and Colorado is responding in a predictable manner: cutting public services. Current proposals call for $540 million in health care, education and other service cuts from the approved 2010 budget. These are cuts that Colorado families cannot afford.

Unfortunately, these budget cuts coincide with a dramatically increased need for services. State revenues fall because people are losing their jobs, and people looking for work need a strong public sector more than ever. Our Medicaid cases have increased by over 100,000 since December of 2007. Enrollment at our universities and colleges is skyrocketing. The proposed additional cuts in K-12 education, higher education, health care services, youth corrections services, revenue collection capacity and capital construction activities all have negative consequences for our economy as well as terrible personal consequences for families.

In fact, we know that the benefits from our public investments are critical to the economic prosperity of Coloradans. We know that education is directly related to employment. Unemployment rates for high school graduates are about 40% higher than for college graduates. Unemployment rates for those without a high school diploma are more than twice the rate of those who have high school diploma. Tom Clark, of the Denver Metro Chamber of Commerce, called the state's underfunding of education the "soft underbelly in the Colorado economy."

While economic conditions mean that some cuts are inevitable, we believe a more balanced approach to dealing with our economic crisis is needed if we are to protect our economic future. This approach must include closing tax shelters and raising revenue. Tax policy can and should be used to promote clearly articulated public policy goals. The costs of tax loopholes, however, should be considered with the same level of scrutiny and accountability that direct spending receives.

Let's think about it this way. Colorado's taxes utilize a single rate approach; all taxable income is subject to a tax of 4.63% and sales of goods are subject to 2.9% sales taxes. Yet not all taxpayers pay the same amount of their income in taxes. The tax code includes tax deductions that reduce the amount of income counted as taxable and tax credits that are dollar for dollar subtractions from taxes owed as well as exemptions that exclude certain activities or specific categories of taxpayers from sales tax liability. All these tools reduce the amount of money available to state government to provide services and treat differently situated taxpayers differently.

The cost of tax favoritism should be weighed against the cost of service cuts. Tax decisions should include specifically articulated outcomes and require specific measurements to assure that they are accomplishing their stated purpose. Special treatment tax rules should receive regular review by the Legislature.

We appreciate the fact that the Governor has included several measures to increase available revenue in his budget submission for 2010-11. We hope, however, that the Legislature chooses to use its authority more broadly and to consider a wide range of tax policy changes that can increase revenue for vital services and, at the same time, make our tax system less biased. Here is a list of some of the revenue options available to the Legislature that accomplishes these goals.