Experts: Colorado economy clicking
The state’s revenue might have been much higher if numerous Colorado taxpayers hadn’t chosen to delay earning income from investment gains in hopes of favorable changes in the federal tax code, state economists told legislators Tuesday.
As it was, however, the state’s economy is expected to increase by a robust rate through this year, the economists told the Legislature’s Joint Budget Committee in outlining the latest quarterly economic and revenue forecast.
And while the state has the lowest unemployment rate of the entire nation — 2.3 percent — that has led to stalling some employers’ plans to expand, said Natalie Mullis, chief economist for the Legislative Council, the nonpartisan staff for the Colorado Legislature.
Mullis said it is difficult to know if that means the state’s economy has reached a limit, and can grow no more, or is operating beyond its “productive capacity” because there are so many structural changes happening.
Those changes include such things as increased automation, a growing aging population and a “shadow market” due to buying over the internet and smartphones.
“It’s possible that there really is more capacity in the economy and we’re really not in a fully mature expansion of operating that capacity and there’s a little bit more room to grow, which would mean that our forecast is likely too pessimistic,” she said. “It’s also possible that our economy is operating beyond our productive capacity, and if (that’s) true ... the downward side risks to the forecast (are) that we’re in a bubble economy. When we’re in a bubble economy, shocks effect the economy to a much greater extent than they would otherwise, which means there is still a risk of recession.”
Mullis’ economists and those in the Office of Planning and Budgeting agreed that a number of taxpayers expect some changes in federal tax laws under Republican President Donald Trump.
“Anecdotal information in taxpayer data suggests the taxpayers delayed the sale of certain assets, and delayed reporting certain sources of income in hopes that we’d see a federal tax break in tax year 2017,” said Kate Watkins, an economist in Mullis’ office.
Watkins said that reduced the amount of estimated payments in owed taxes, and “cash with returns,” which are payments made when taxpayers file income tax returns. All of that ended up boosting some income tax refunds.
Both offices said they expect to see an increase in next year’s state revenues when those tax bills come due, but can’t say how much because that would depend on what, if any, changes are made at the national level.
Next year’s revenues also changed dramatically because of the approval by the Legislature to take funds earned through the hospital provider fee out from under the revenue caps mandated by the Taxpayer’s Bill of Rights.
The economists in both offices said passage of the new law under SB267 would reduce revenues subject to that cap by about $585 million during the next fiscal year, which starts July 1, and $844 million during the 2018-19 fiscal year.
That not only means there will be more money available next year, but it also eliminates any TABOR refunds for the foreseeable future, the economists said.