A plan unveiled by a group of Colorado lawmakers aims to fundamentally change state tax policy and eliminate the Taxpayer’s Bill of Rights, or TABOR.

The strategy, announced Monday afternoon by Democratic legislators, includes reclassifying chunks of Colorado highway funding so it doesn’t fall under the TABOR spending cap, which would free up money for other things. They also hope to end Colorado’s flat income tax and replace it with a system in which higher-income taxpayers pay higher rates than low-income filers.

And lawmakers introduced a resolution this week that seeks to launch a lawsuit challenging the legality of TABOR, which was passed by Colorado voters in 1992, under the U.S. Constitution.

“The state is coming to a reckoning on whether we can sustain ourselves,” said Sean Camacho, a Denver Democrat. “And all of these measures are critical to figuring that out.”

The lawsuit resolution has attracted a roster of co-sponsors, including some top legislative leaders. The proposals come as Colorado lawmakers have faced a budget hole of more than $1 billion to fill because of the cap set by TABOR. TABOR limits how much state spending can grow based on inflation and population growth. Certain sectors of government spending, chiefly mandatory Medicaid costs, have far outstripped the pace of consumer inflation, effectively eating into how much the state can spend on nonmandatory programs.

Republicans are certain to oppose the package. In a caucus meeting about the budget situation Tuesday, Senate Minority Leader Paul Lundeen said he intended to defend TABOR against any upcoming legislation that would alter it.

“We don’t have a revenue problem,” he told Republican colleagues. “We have a spending problem. And we’ve created a structural deficit. So when TABOR falls under assault in the course of this conversation, be prepared to level-set.”Some of the new proposals have already been introduced in the legislature, while others are planned for introduction later this week. The resolution introduced Monday would direct the legislature’s Committee on Legal Services to file a lawsuit on behalf of the General Assembly to challenge TABOR’s constitutionality.

Another bill in the package, Senate Bill 173, has already cleared one chamber; it would reclassify state revenue so it wouldn’t count under TABOR’s cap. A third — House Bill 1296, which makes various changes to a series of tax credits — was introduced in early March. An initial committee vote on that measure was delayed Monday amid uncertain support among Democratic lawmakers.

The proposals related to eliminating the flat income tax and replacing it with a graduated system have not yet been introduced, though Democratic Rep. Lorena Garcia, who’s sponsoring them, said they are ready to be formally unveiled in the House.

The graduated income tax would slightly decrease the taxes paid by those making less than $1 million a year, according to an analysis from the liberal Bell Policy Center. Filers reporting between $1 million and $2 million in income would see their taxes rise by about $21,000, while filers reporting between $2 million and $5 million would see their taxes increase by about $103,000.

The changes would drop the state income tax to 4.2% for filers reporting less than $100,000 per year and leave it unchanged, at 4.4%, for filers reporting less than $750,000 per year, according to Bell’s analysis. Income between $750,000 and $1 million would be taxed at a rate of 8.5%, while income over $1 million would be taxed at 9.5%.

That proposal would require amending the state constitution — meaning two-thirds of legislators would need to approve the proposal, before sending it to a vote of the people.

Since Democrats are one seat shy of holding a two-thirds majority in each legislative chamber, Republicans — if they hold firm — could block the measure.

Challenging TABOR

Besides Camacho and Garcia, fellow Democrat Yara Zokaie is spearheading the broader effort.

The lawsuit resolution would need to pass with a simple majority vote in both chambers. Camacho said the litigation would challenge TABOR on the basis that it constricts the state’s republican form of government from carrying out its duties.

He said the theory has not been tested in court yet.

Before being elected to office, Camacho served on a legal team challenging the constitutionality of TABOR, but its bid was thrown out over a legal standing issue, he said. That attempt to invalidate TABOR ended in 2021, after a decade-long legal fight. Gov. Jared Polis and Attorney General Phil Weiser both defended TABOR at the time.

Sens. Lindsey Daugherty and Iman Jodeh, both Democrats, have signed on to sponsor the measure in their chamber. Daugherty said the budget crunch has left policymakers hoping to pay for programs for residents with “no other choice.” She said the lawsuit would ensure the issue gets its day in court.

“We want to do whatever we possibly can to make sure that, in the future, we can fund those programs that are being cut for, quite frankly, our most vulnerable folks in the state,” Daugherty said.

House Minority Leader Rose Pugliese, a Colorado Springs Republican, pledged to “fight very hard” against the proposal. She highlighted recent failed efforts led by Democrats to reform TABOR.

“We thought that maybe Democrats learned after Proposition HH’s defeat that the people of Colorado love the Taxpayer’s Bill of Rights and they love their Taxpayer’s Bill of Rights refunds,” Pugliese said, referring to the doomed, complicated 2023 measure to change the cap and lower property taxes. “It is something we continue to hear at the door: a mandate on us to protect the Taxpayer’s Bill of Rights.”

A Polis spokeswoman, Shelby Wieman, didn’t comment directly on the proposals but noted the governor’s past support of income tax reductions, including signing a bill that reduced the rate to 4.25% for 2024. He also has broadly supported TABOR.

“While we are unaware of any such (new) proposal, the governor has always supported lowering the income tax for everyone,” Wieman said.

Seeking ‘ways to work around’ TABOR

Zokaie and Camacho both said TABOR constraints had been rising as an issue for their voters. Constituents at town halls frequently ask what the state can do to better fund education or roads, Zokaie said — and for Zokaie, the answer is that TABOR means the state can’t.

“The truth is TABOR has a chokehold on our state, and we need to find ways to work around it,” said Zokaie, a Fort Collins tax attorney.

Democratic leaders’ talk of reforming TABOR has been bubbling up throughout the legislative session. Speaker Julie McCluskie, a Dillon Democrat, floated the idea of pausing the spending cap and resetting it, like voters did with Referendum C in 2005.

On Tuesday, though, McCluskie demurred when asked if she supported the lawsuit resolution or the other reform bills.

She said she “wrestled” with TABOR, given its impact on the budget at the same time voters strongly support its requirement that proposed tax increases be put on the ballot.

“I am still reviewing and considering (the new proposals),” she said, “and I want to be very thoughtful and represent my district in how I move forward with both the TABOR resolution and some of the other discussion around reforms.”

Other Democrats have discussed carving out specific programs, such as education or Medicaid, from the TABOR cap.

The lawsuit resolution is co-sponsored by 31 House Democrats, including most of the chamber’s leadership (though not McCluskie).

“Have you seen the budget?” Garcia, of Adams County, responded when asked about the need for the bills. “We need TABOR reform because it has been 30 years — longer than 30 years — and our tax policy has not kept up with the times today.”

Any changes to TABOR or state tax policy would need a vote by the people — unless the lawmaker-led challenge to TABOR in court succeeds.

Republicans have already dug in to oppose any changes to TABOR.