What are the impacts of a local employment tax on the Boulder economy?
Tax Burden and Competitive Analysis
While the tax is assessed on the firm for each employee, the firm (and the employee) may not individually pay the tax. Rather, the tax burden is often shifted to others based on their market power. This analysis suggests the distribution of the tax bill as seen in the pie chart.
To understand who would likely pay the real burden of this tax, costs, taxes, and labor rates facing firms and households in Boulder and in several peer communities around the metro area and the United States were examined. The communities were chosen based on information gained from current and recent firms interested in relocating to or expanding in the City of Boulder; in short, this is Boulder's competitive set.
The analysis revealed Boulder firms tend to pay at or above average wage levels when compared to similar firms in competing communities around the nation. However, Boulder firms pay generally higher wage rates compared to similar firms in the metro area. The analysis revealed other differences in the costs faced by Boulder firms, but in general these differences were relatively minor in terms of the scale of difference and their role in the average firm's operating costs. Many casual observes feel Boulder's commercial real estate prices may be above metro or comparable national lease rates. This analysis revealed that the Boulder market lease rates are relatively similar to other locations around the country.
From a household perspective, the primary difference Boulder and other selected communities is the housing price compared to the mean wage level. Boulder's housing prices are nearly double the median housing price from the sample of national competing communities, and significantly higher than nearby competing communities. (The higher prices may be accounted for by differences in the size and conditions of the community housing stock. Yet, it seems unlikely that all of the price variance can be explained by these differences; rather, the conclusion is Boulder's housing prices due reflect a capturing of the value of the setting and conditions of the community.) A closer look at this issue revealed that the household income distribution is bi-modal. Boulder has two primary household groups: low/moderate income and uppermiddle/upper income. Middle-income households appear to be priced out of the local market. A second important related observation is that Colorado has very low property tax burdens compared to other parts of the country, and a portion of the property tax bill has been transferred into the price of the home.
From this portion of the analysis, two conclusions are suggested. First, it is expected that Boulder firms will be sensitive to any taxes that further raise labor costs - without an offsetting increases in productivity. Second, any tax that falls on middle or lower/moderate income households in the community, such as an employment tax, may further contribute to the erosion of the middle class from the local market.
