What are the impacts of a local employment tax on the Boulder economy?

What are the fiscal impacts and issues for the City of Boulder's budget?

If the City of Boulder exempts small businesses and low-wage employees from paying the employment tax, about $780,000 per $1 of tax rate would be generated. In the few Colorado communities that already impose such a tax, the normal tax rate is approximately $5 employee/$5 employer per month. This new tax would generate about $7.8 million in revenue per year.

Communities in Colorado have followed several paths to encourage and grow their local economies, with resulting increased tax revenues that support public programs and services. During the past decade, the City of Boulder gained additional tax revenues through three primary means: increasing the economic base of the community, raising the rates on existing taxes, and imposing new taxes and fees (or extending them to other activities).

In the graph above, the retail sales tax rate has grown by nearly 10% (from 3.11% to 3.41%) during the period shown. Yet, the analysis shows last year's sales and use tax revenues are down 12% from the revenue levels of 2000.

For the purposes of this study, our analysis included a review of sales and use tax revenues and the sales tax rate. A detailed financial and economic analysis of the City's revenues sources would provide a more complete understanding of both the historic and likely future revenue patterns, as well as the likely impact from tax policy changes. However, a reasonable conclusion is the largest driver of increases of the sales and use tax revenues is growth in the economic base of the community.