State income tax policy remains one of the clearest dividing lines in American politics. During the 2026 legislative sessions, states moved in sharply different directions. Some pursued higher rates, wealth taxes, and new sources of revenue to support expanded government spending. Others enacted tax cuts and advanced plans to eventually eliminate their income taxes. At the same time, voters in several states may soon decide major tax questions at the ballot box.
This three-part series examines those developments. The first article provides an overview of the income tax legislation enacted across the states in 2026. The second article explores the competing fiscal philosophies behind those decisions, contrasting states focused on spending restraint and tax relief with those seeking a larger role for government financed by higher taxes. The final article focuses on Colorado, where one of the nation’s strongest taxpayer protections, the Taxpayer Bill of Rights (TABOR), has become the center of an ongoing political battle. As efforts to weaken or circumvent TABOR continue, Colorado offers a revealing case study of the broader debate over taxes, spending, and the proper size of government.
Colorado is the embodiment of the nationwide debate about fiscal policy. The Centennial State is seeing the fight surrounding taxes, spending, and taxpayer protections playing out firsthand, as lawmakers and activists are once again challenging one of the nation’s strongest taxpayer protections.
The current debate in Colorado is also an example of two competing philosophies of government: one centered on increasing taxes and spending, and the other focused on preserving taxpayer protections, preventing tax increases, and limiting spending.
Supporters of Initiative 195 are seeking to replace Colorado’s current 4.4 percent flat income tax with a six-bracket progressive income tax beginning in 2027. Under the proposal, rates would range from 3.7 percent to 8.4 percent. If supporters gather enough signatures, Colorado voters will have the opportunity to decide the measure this November.
The proposal would do more than change Colorado’s tax structure. Supporters argue that the measure would generate additional revenue for public services and government programs. Opponents counter that it would destory the Taxpayer Bill of Rights (TABOR), allowing the state to retain and spend significantly more revenue that would otherwise be returned to taxpayers.
Colorado occupies a unique place in the national debate over taxes and spending because it has long served as a battleground between these competing fiscal philosophies. Colorado’s TABOR was adopted by voters in 1992, amending the state constitution to limit the growth of government revenue and spending while requiring voter approval for tax increases. TABOR is considered to be the strongest state-based tax and spending limitation in the country.
The measure was designed to give taxpayers direct control over major fiscal decisions and to ensure that government growth generally remained tied to population growth and inflation. Under TABOR, excess revenue above the constitutional limit is generally refunded to taxpayers unless voters authorize the state to retain and spend it.
Since its inception more than three decades ago, the state has repeatedly wrestled with a fundamental question: Should excess revenue remain in the hands of taxpayers, or should government be allowed to keep and spend more of it?
The most significant change to TABOR occurred in 2005, when voters approved Referendum C, allowing the state to retain and spend revenue above the original TABOR limits for five years and establishing a higher long-term spending cap thereafter. That measure effectively softened TABOR’s revenue restrictions while preserving voter approval requirements for tax increases and taxpayer refunds when revenues exceed the new cap. In more recent years, advocates have pursued additional efforts to weaken or modify TABOR, including a failed 2019 ballot measure (Proposition CC) that would have allowed the state to permanently keep TABOR refunds rather than return them to taxpayers.
Initiative 195 would represent one of the most significant challenges to TABOR yet. The measure would effectively eliminate TABOR refunds for the foreseeable future by establishing a higher spending cap that would allow the state to retain billions of dollars that would otherwise be returned to taxpayers.
The stakes are substantial. Estimates suggest the proposal could generate roughly $2 billion in additional revenue during Fiscal Year 2027–2028, while taxpayers would lose future TABOR refunds. Colorado expects to return approximately $306 million to taxpayers this year alone, and TABOR refunds have averaged roughly $700 to $800 per household in recent years. Since TABOR’s adoption, more than $12 billion has been refunded to Colorado taxpayers.
The debate over Initiative 195 reflects the broader fiscal divide discussed throughout this series. Supporters of the Initiative argue that Colorado needs additional revenue to fund public priorities and that higher-income taxpayers should contribute more. Opponents contend that the state’s problem is not insufficient revenue, but insufficient spending restraint.
Those concerns have intensified as state spending has grown. Colorado recently approved a $46.8 billion budget, and critics point to significant spending increases over the past decade as evidence that government does not need additional revenue. From their perspective, Initiative 195 is less about tax reform and more about allowing government to retain and spend money that TABOR currently returns to taxpayers.
Perhaps most notably, opposition to Initiative 195 is not limited to those in conservative circles. Democratic Governor Jared Polis has publicly criticized the proposal, warning that moving from a flat tax to a graduated income tax would be “absolutely devastating” to Colorado’s economy. Polis has even expressed support for eventually eliminating Colorado’s income tax altogether.
Whether Initiative 195 ultimately reaches the ballot or succeeds with voters, the proposal illustrates why Colorado remains one of the most closely watched states in the country. The fight over TABOR is not simply a dispute over tax rates. It is an ongoing contest between two competing visions of government: one that seeks to expand government’s access to revenue in order to fund additional spending, and another that seeks to constrain government growth and preserve taxpayer protections. More than three decades after voters first adopted TABOR, the underlying question remains unchanged: who should elected officials control government or should taxpayers themselves? The answer Colorado provides may influence similar debates far beyond its borders.
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