Progressives target Colorado’s flat tax as state revenue questions grow

Colorado’s flat tax faces a challenge

Colorado’s tax system could be headed for a major change. Initiative 195 Graduated Income Tax would replace the state’s 4.4% flat income tax with several tax brackets, lowering rates on some income while raising them on higher earnings.

Supporters submitted more than 157,000 signatures on August 3. State officials are now reviewing them to determine whether the measure qualifies for the November 2026 ballot.

Six new tax brackets are proposed

Initiative 195 Graduated Income Tax would change how Colorado calculates state income taxes. Income up to $25,000 would be taxed at 3.7%, while income from $25,001 through $100,000 would be taxed at 4.2%.

Income from $100,001 through $500,000 would remain taxed at 4.4%. The rate would rise to 7.4% on taxable income from $500,001 through $750,000, 7.9% on income from $750,001 through $1 million, and 8.4% on income in the top bracket.

The signatures still need approval

The Initiative 195 Graduated Income Tax campaign has cleared an important step, but it is not officially on the ballot yet. Colorado election officials must determine whether enough submitted signatures are valid.

The campaign needs at least 124,238 valid signatures statewide, along with signatures equal to at least 2% of registered voters in each of Colorado’s 35 state Senate districts.

Most taxpayers could see lower rates

Supporters say the proposal would reduce income taxes for about 97% of Coloradans because rates on the first portions of taxable income would fall. Taxpayers with less than $500,000 of taxable income would generally benefit from lower rates on the first two brackets, according to the measure’s supporters.

Higher earners would still receive those lower rates on their first dollars of income. The increased rates would apply only to income reaching the measure’s higher brackets.

Fun fact: Colorado was among the states using a single individual income tax rate in 2025.

Higher earners would pay more

The biggest tax increases would fall on people with taxable income above $500,000. Initiative 195 would impose a 7.4% marginal rate on taxable income from $500,001 through $750,000, a 7.9% rate from $750,001 through $1 million, and an 8.4% top rate on the highest bracket.

Supporters argue that asking top earners to pay more could strengthen public services. Opponents warn that steep increases could affect business decisions, investment, and where wealthy taxpayers choose to live.

The proposal could raise billions

Colorado’s nonpartisan Legislative Council Staff projects that Initiative 195 would raise about $963 million in its first partial fiscal year and about $1.98 billion in FY 2027 to 28, with revenue expected to grow in later years.

That projected amount is not guaranteed. Actual collections would depend on future incomes, economic conditions, taxpayer behavior, and how the measure interacts with Colorado’s unusual constitutional limits on state revenue.

TABOR makes Colorado different

Colorado’s tax debate cannot be separated from TABOR. The constitutional amendment limits how much revenue the state can retain and spend, generally allowing the limit to grow with inflation and population unless voters approve another change.

Revenue above Colorado’s applicable TABOR limit generally must be refunded unless voters authorize the state to retain it. Initiative 195 would classify its additional graduated income tax revenue as a voter-approved revenue change, allowing that new revenue to be kept and spent without reducing TABOR refunds under the state’s fiscal analysis.

A competing tax cap could appear

Voters could face a very different income tax proposal on the same ballot. Advance Colorado submitted nearly 190,000 signatures for Initiative 232, which would cap Colorado’s individual and corporate income tax rates at 4.4%.

If both measures qualify, voters could face directly conflicting proposals: If both pass, the proposal receiving more yes votes could control where the measures conflict.

Revenue questions fuel the argument

The push comes as Colorado lawmakers face difficult budget choices. Supporters say additional revenue could ease pressure on education, health care, child care, and other services while lowering taxes for most households.

Opponents question whether higher rates actually produce the expected revenue over time. They argue that taxpayers and businesses may respond to higher rates in ways that could weaken the state’s tax base.

Fun fact: Colorado’s state sales tax rate is 2.9%, one of the lowest statewide rates in the country.

Colorado has changed rates before

Colorado’s flat tax has not always been 4.4%. The state used a 4.63% rate for many years, followed by voter-approved reductions and temporary adjustments connected to TABOR refund rules.

What makes Initiative 195 different is the structure. Instead of applying a single percentage to everyone, it would create brackets in which different portions of income are taxed at different rates, similar to the federal income tax system.

Business taxes are part of the fight

The debate is not limited to individual paychecks. Initiative 195 would apply the same six graduated rates to corporate taxpayers, replacing Colorado’s current 4.4% corporate income tax with rates ranging from 3.7% to 8.4% based on taxable income.

Opponents argue that higher taxes could make Colorado less attractive to some businesses. Supporters counter that better-funded schools, health programs, and public services can also influence whether companies and workers consider a state attractive.

The ballot battle is not settled yet

For now, neither side can assume voters will see its proposal in November. The Colorado Secretary of State lists both Initiative 195 and Initiative 232 in signature-line review, meaning submitted petitions are still being checked.

That process matters because collecting signatures is only the first hurdle. Enough must be valid and properly distributed across Colorado’s Senate districts before either proposal can officially earn its place on the statewide ballot.

For another property tax update tied to homeowner costs, housing policy, and legal challenges, see why New York City residents are suing to delay Mamdani’s pied-à-terre tax.

Colorado could rethink its tax identity

If Initiative 195 qualifies and passes, Colorado would move away from the flat income tax structure that has defined the state for decades. That would make the 2026 vote a major decision about who should pay and how much.

The argument reaches beyond tax rates. Voters would be weighing competing ideas about revenue, public services, economic growth, taxpayer protections, and whether higher earners should carry a larger share of future state costs.

For another tax update tied to retirement costs, household budgets, and state tax policy, see why Texas retirees can still face several taxes despite having no state income tax.

Should Colorado keep taxes simple, or ask higher earners to cover more of the gap? Share your thoughts and drop a comment.

This slideshow was made with AI assistance and human editing.

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