Tax cut plan advances in Colo. Senate

DENVER -- Colorado would join more than two dozen states with a local version of the federal earned income tax credit under a proposal approved Wednesday in a state Senate committee.

The tax proposal won unanimous support from both parties. But Republicans warned that the tax breaks take effect only if state tax collections rise, an uncertain prospect.

The bill would make permanent the Colorado earned income tax credit, to be phased in starting next year, and also would create a Colorado child tax credit. A legislative analysis projected the bill would return some $40 million to taxpayers in its first year.

Sponsors of the bill argue that the tax cuts would reduce poverty and possibly reverse rising childhood poverty rates in Colorado. They also argue that decades of federal experience show that the earned income tax credit stimulates the economy by helping to keep the working poor on the job.

"One of the reasons for doing this bill is encourage folks to work and to encourage work," said Sen. John Kefalas, D-Fort Collins.

However, the tax cuts don't take effect until next year, and only if state tax collections pick up more than $100 million. Republicans supported the cuts but said Democrats should have proposed the cuts this year, without the contingency.

"We are creating a situation of hope here that has possibility of not coming to fruition," said Sen. Kevin Grantham, R-Canon City.

Democrats insisted the tax cuts will take effect, based on projected tax receipts. They argued that the tax "trigger" was added simply to assure lawmakers that the tax bill wouldn't take effect unless Colorado can afford it.

"I think this is a rational way to do fiscal policy," Kefalas said.

The tax cut proposal faces one more Senate committee before it reaches the full chamber. The Senate has already approved a budget for next fiscal year that doesn't include the child tax credit nor the earned income tax credit.