A proposed change in Colorado's income tax from flat to graduated would mean higher taxes for residents earning over $500,000 annually and tax cuts for those earning less than $100,000, according to officials.

Coloradans will consider the change November 3 when they vote on the first change in the state's income tax structure in nearly 40 years.

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Residents will decide the fate of Amendment 87, which seeks to change the state Constitution by replacing Colorado’s 4.4% flat income tax with a graduated tax ranging from 3.7% to 8.4%. A graduated tax is currently prohibited by the Constitution's Taxpayer's Bill of Rights, or TABOR.

Proponents argue the measure will help middle- and lower-income Coloradans by giving them a tax cut, but opponents warn the measure could hurt small businesses and the creation of jobs.

Under Amendment 87, Coloradans making between $500,001 and $750,000 annually would pay 7.4%, while those making between $750,001 and $1 million would pay 7.9%. Those earning more than $1 million a year would pay 8.4% - an increase of 4%.

Coloradans making between $100,001 and $500,000 would keep paying the current 4.4% income tax, while those making between $25,001 and $100,000 would pay 4.2%, a tax cut of 0.2%.

People making up to $25,000 a year would see the biggest tax cut, paying a 3.7% income tax. That's a 0.7% decrease.

Colorado's Legislative Council staff estimates if the amendment passes, it will take in nearly $1 billion for Fiscal Year 2026-2027 and almost $2 billion in FY 2027-2028,. The extra revenue would fund healthcare, childcare and education initiatives, according to the ballot measure.

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Caroline Nutter, policy manager for the Colorado Fiscal Institute, said Amendment 87 would give a tax break to 97% of Coloradans, noting the average tax cut for a Colorado taxpayer with a median income would be $325. The "median" income is one in which half of taxpayers are earning more than those with the median income.

Nutter told The Center Square that 95% of Colorado businesses will see a tax cut, adding that 94% of the businesses getting a tax increase are multi-state corporations.

High-income earners “have some sensitivity to tax rates,” but that it's “much smaller than people imagine," Nutter said.

She highlighted Massachusetts, which increased taxes on millionaires in 2022. But the state’s number of millionaires rose almost 39% between 2022 and 2024, while their overall wealth rose 37.3%, according to the Institute for Policy Studies.

Joshua Mantell, director of government relations for The Bell Policy Center, a Denver think tank, said Colorado’s current income tax lets millionaires pay the same percentage of tax as minimum-wage workers.

The result is the flat rate has a greater impact on lower-income workers than those with a higher income, Mantell said.

But critics warn about the tax change's impact on Colorado's economy and inflation.

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Governor Jared Polis, a Democrat, has opposed the amendment, saying in an op-ed that the tax increase “would seriously hurt [Colorado’s] economy and raise prices on everything from restaurants to clothing and other necessities.”

Orphe Divougney, The Center Square’s chief economist, said the state's methodology for estimating its FY 2026-2027 revenue doesn’t account for the “potential impact that these types of policies have on economic outcomes.”

When income taxes rise, Divougney said, it tends to reduce business investment and lead to relocation.

If business investment in Colorado declines, it will reduce the state's tax collections “relative to what the current projections are showing," Divougney told The Center Square

Amendment 87 will give Coloradoans making less than $100,000 a tax cut, but the “unintended consequence of raising taxes for everyone else could actually reduce overall economic spending in the Colorado economy,” Divougney explained.

He added that it could “potentially reduce job creation” and “hurt those who are getting that tax cut in the first place.”

Mantell of The Bell Policy Center said Colorado’s state revenue “has been stretched to the point of completely breaking,” and the state has cut over $2 billion from its budget in recent years.

He said Colorado expects to cut another $1.6 billion from its budget next year.

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Colorado does not have the current revenue “to be able to make the kinds of investments people want, need and deserve,” Mantell explained.

But critics of Amendment 87 raise some red flags.

Nash Herman, a policy analyst for the Independence Institute, said the amendment includes “bracket creep," which refers to income tax rates that “don't adjust for inflation.”

“As people’s wages increase over time, a lot of that nominal wage growth is driven by inflation. This ends up pushing these people into higher brackets over time, even though their purchasing power doesn’t actually keep up,” Herman told The Center Square.

Herman said proponents of Amendment 87 say it is a tax cut for 97% of Coloradoans, but he noted this would be only in the “very short term.”

Every year “those tax cuts will shrink for people, and then eventually, given enough time, everyone will actually be taxed significantly more than they should based on their purchasing power,” he explained.

Herman said it is possible for Colorado to fund education, healthcare and childcare with existing funds, adding that “there’s a lot of fear-mongering about [the state’s] budget situation.”

Colorado has had numerous budget crises, but he said they are “self-caused” because the state put one-time COVID federal money into programs that need ongoing funding.

Michael Smith, National Federation of Independent Business' state director for Colorado, said Amendment 87 would hit small businesses hard if it passes, noting over 90% of small businesses “report their business income on a personal income tax return.”

He told The Center Square that restructuring Colorado’s income taxes would increase taxes for Coloradoans by almost $3 billion.

Smith said Colorado’s NFIB, which has nearly 6,000 members, found “resounding opposition” to the tax change.

He said Colorado NFIB members worry the income tax increase will “make it harder for them to operate and result in less money to invest and grow their business.”

“When taxes go up, affordability goes down, and that impacts everybody,” Smith noted.