Boulder Head Tax: Why consider another tax? Like many cities and towns in Colorado, Boulder relies on local sales and use taxes for municipal revenues. In most cases, local communities find these taxes often make up close to two-thirds of local tax revenues. The loss of sales tax revenue has affected the City's ability to maintain current service and staffing levels. Therefore, the civic leadership has begun to investigate other taxes.
One new tax that has been mentioned is an employment (or head) tax. One of the advantages of this tax is it is already legally permitted in Colorado for local governments, and at least nine communities in Colorado, as well as cities in other parts of the country, apply it. An employment tax is generally a fixed sum, either applied to an individual employee or based on the number of employees of a firm. The tax is administratively applied to both the employer and employee. As an example, in Denver the employer pays $4 per employee and the employee pays $5.75 per month.
However, as with most taxes, the burden of the tax is carried not by the administrative unit but passed on to others due to the relative market power of the firm, the employee, and/or the customer. The "actual tax" will be paid by the firm, the employee, or by the final customer (or some combination of these groups or all of them). For instance, if a firm operating in Boulder has a unique product, either the employee or the final customer will pay the burden of the tax.
In the end, the City of Boulder will need to generate additional revenues to support the level of services and programs demanded by the citizens. To generate this revenue, several strategies may be considered: increase the economic activity within the community, adjust local tax rates and/or the basis of the tax, and/or impose a new tax on residents or firms households. If community leaders chose the path of either raising tax rates or imposing a new tax, care should be given to ensure this action does not make the community less competitive--for either firms or specific household groups. As has been pointed out, an employment tax will likely have a negative impact on many types of firms and several household groups.
Several taxes have lower negative impacts on the business climate, including vehicle permits, users fees, and property taxes. Furthermore, these taxes tend to have a strong link (nexus) to specific outcomes from the activities. A rational for selecting a tax is to ask the question, "do we want less of this activity within our community?" Another question to be considered is that of equity or fairness; this allows a more complete understanding of who pays the cost and who receives the benefits of the tax.
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