Tax reform to help working families is making its way through the Colorado General Assembly, and not a moment too soon.

The pandemic, and its associated economic turmoil, have hit low- and middle-income Coloradans disproportionately, revealing real cracks in our economy that existed far before 2020. That is why expanding tax credits for working families — like the state Earned Income Tax Credit (EITC) and the state Child Tax Credit (CTC) — is so crucial. HB21-1311 would do just that while capping and reducing tax breaks and exemptions that go to the wealthiest Coloradans and large, multi-state corporations.

The federal Earned Income Tax Credit has been in place since 1975 and has been proven to be an effective tool in fighting poverty. It is a tax credit for those who are working and make less than $55,000 annually, with varying amounts depending on income and number of dependents. The Colorado version has been in place since 2013, helping more than 330,000 Colorado families as of 2018 data. But the Tax Fairness for Coloradans package (HB-1311 and HB-1312) would increase the amount and the number of people who are eligible for it.

Currently, the Colorado EITC is 10 percent of the federal credit, but HB-1311 would expand that to 20 percent starting in 2022 with an increase to 25 percent in 2023. It would also increase the number of Coloradans eligible for the EITC. Instead of allowing only workers aged 25-64 to claim the state EITC, HB-1311 would increase eligibility to all workers 18 and over, including those over age 65. These groups, many of them without dependents, are estimated to be approximately 200,000 workers who will now have access to tax relief they had not previously.

The imperative to do this needs to bend to fiscal reality, however. Even in the best of economic times, Colorado has struggled to adequately fund all of the programs upon which Coloradans depend. To ensure that working families get the sustainable and long-term tax relief that they need, this bill funds these tax credits by not allowing the wealthy to have extra tax breaks and clamping down on overseas tax havens. The Tax Cuts and Jobs Act of 2017 made significant changes to the federal tax code that, due to the quirks of Colorado, automatically got folded into our state tax code.

For example, Congress removed a cap on the amount of itemized deductions one can take. HB-1311 would reinstate a cap on itemized deductions for those making more than $400,000 in income annually. According to the Tax Policy Center, those making more than $500,000 per year take an average of more than $267,000 of itemized deductions – no other income group even averages $60,000 in itemized deductions. Using this money, along with other changes to the individual and corporate income tax code, to fund working family tax credits will make our tax code significantly fairer.

Increasing Colorado’s Earned Income Tax Credit and funding the state’s Child Tax Credit with funding from outdated and inequitable tax breaks will make our code work better for all Coloradans. And because working families and small businesses are what make our economy flourish, these bills will also boost our local communities. These bills make economic sense and will help families across our state. The Tax Fairness for Coloradans package is the right move at the right time for Colorado.

Joshua Mantell is the Rapid Response Policy Analyst for the Bell Policy Center.