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Newsletter — Issue 44 — Wednesday, August 26, 2026
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This newsletter has been published by Engage Colorado.
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Initiative 195 — Part Two
Why a Graduated Income Tax Would Devastate Colorado
How Destination and Departure states are moving in opposite directions
This Engage Colorado Newsletter reflects the personal opinions of Dan Caruso, written with the support of the Caruso Ventures team. The Ensuring Colorado's Innovation Future Coalition did not review and has not endorsed this Engage Colorado Newsletter.
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Last issue was called Dumb and Dumber.
Dumb was the Colorado AI Act, which destroyed Colorado's reputation as a state attractive to tech and innovation, and left us a state that innovators avoid.
Dumber would be Initiative 195, the graduated income tax headed for this November's ballot. If Colorado enacts it, we would be set back a decade or more — innovators, and the investments and opportunities that come with them, would avoid and flee Colorado.
Texas, Florida, and other Destination States would celebrate if Initiative 195 makes its way into Colorado's tax code. The next generation of Coloradans would be the ones most harmed.
The views in this issue are mine alone.
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Start With the Destination States
These are the states Colorado competes with — for the founders and investors deciding where to build, and for the ones already here deciding whether to stay. The Honest Assessment identifies them as Arizona, Florida, Georgia, Idaho, Nevada, New Mexico, North Carolina, Tennessee, Texas, and Utah.
They compete on many things. The one they compete on most visibly is tax — and on that front the pattern is nearly uniform. Four of these ten levy no income tax at all. Five of the remaining six have cut their rates within the last two years.
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• Texas, Florida, and Nevada levy no state income tax on wages at all. Neither does Tennessee, which repealed its remaining investment income tax in 2021.
• Arizona replaced a five-bracket graduated income tax with a flat 2.5%, the lowest rate of any flat-tax state. Signed in 2021, upheld by the Arizona Supreme Court against a referendum challenge, and accelerated into effect on January 1, 2023 when state revenues hit their trigger a year early. Arizona abolished the graduated income tax Colorado is now considering adopting.
• North Carolina completed a multiyear phasedown on January 1, cutting its flat rate from 4.25% to 3.99%. Its corporate income tax is legislated to reach zero by 2030.
• Georgia cut from 5.19% to 5.09% on January 1, and is scheduled to drop a tenth of a point every year until it reaches 4.99%.
• Utah cut from 4.5% to 4.45% — its third consecutive reduction.
• Idaho cut its rate to 5.3% in 2025.
• New Mexico is the lone exception, still running a graduated structure.
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Notice the pattern. With one exception, every state Colorado competes with is either at zero or moving down. Several have written their future cuts into law, so a founder can read the statute today and know what the rate will be in 2030.
That is why The Honest Assessment scores tax burden 4.5 out of 5 for the Destination Geographies — on both current position and trajectory. It is the steadiest double score anywhere in the twelve-factor framework. Income taxes in those states range from zero to low today. The trajectory is lower still, much of it already written into statute. And the message from their leaders is consistently reassuring — an innovator evaluating those states hears that rates are stable or headed lower.
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Now the Departure States
These are the states people are leaving: California, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and Washington.
They are moving in exactly the opposite direction, and 2026 has been their most aggressive year yet.
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• California taxes capital gains as ordinary income at 13.3% — and its Billionaire Tax Act has qualified for the November 2026 ballot.
• Washington enacted a 7% capital gains tax in 2021 and, in March of this year, signed a 9.9% tax on income above $1 million.
• Massachusetts added a 4% surtax on income above $1 million.
• New Jersey carries the nation's highest corporate rate at 11.5%, and its highest average property tax per home.
• Illinois is studying a 3% surtax after an advisory referendum drew 61% support.
• New York City has a 2-point surcharge on income above $1 million pending state authorization.
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Pennsylvania deserves separate mention, and study. Governor Josh Shapiro — a Democrat governing a Departure state — has taken exactly the kind of proactive steps Colorado should be taking. He has cut the Corporate Net Income Tax to 6.99% on its way to 4.99%, saving Pennsylvania businesses more than $2.9 billion. He launched the Commonwealth's first comprehensive economic development strategy in two decades. His administration cut licensing and business processing times by an average of 74% even as filings doubled — work that once took weeks now takes a single business day. Site Selection magazine named Pennsylvania the number one state in the Northeast for regional economic competitiveness. And Amazon is investing $20 billion there, the largest private-sector investment in the state's history.
None of that is partisan. It is a Democratic governor deciding his state would compete.
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The Honest Assessment scores tax burden 1.5 out of 5 for the Departure Geographies, on both current position and trajectory — three full points below the Destination States. Rates today are among the highest in the country. The trajectory is higher still. And the message from their leaders is not reassurance but warning: more is coming.
Taxes are not the only reason innovators are leaving California, New York, and Illinois for Texas, Florida, and the other Destination States. But they sit at the very top of the list. For a founder deciding where to spend the next decade — and where to be a resident when that decade finally pays off — few factors weigh more heavily.
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And Then There Is Colorado
Colorado sits between these two groups — and closer to the good one than most people realize.
Our 4.4% flat tax is competitive today. It is below Utah's 4.45%, Georgia's 5.09%, and Idaho's 5.3% — three Destination States. It is above Arizona and North Carolina, and it cannot compete with the four states that levy nothing at all. But on rate, Colorado is still in the conversation.
The Honest Assessment scores Colorado 2.3 out of 5 on tax burden — well below the Destination States' 4.5, but meaningfully above the Departure States' 1.5. And what holds that score up is exactly two things: our flat income tax, and TABOR's check on spending.
Tax burden · scores are out of 5 · current and trajectory
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Destination Geographies
Zero to low today, lower still tomorrow — much of it already written into statute.
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▲ 4.5 → 4.5
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Departure Geographies
Among the highest rates in the country — and the message from their leaders is that more is coming.
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▼ 1.5 → 1.5
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Colorado
Held up by exactly two things — the flat income tax and TABOR's check on spending. Initiative 195 removes both.
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2.3
At risk
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Initiative 195 would remove both.
It does not simply raise a rate. It replaces the flat tax with six brackets, and it strips from TABOR the requirement that all taxable income be taxed at one rate. Two pillars, one measure.
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▲ 8.41%
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Colorado's top rate under Initiative 195 — higher than every single state we compete with.
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At 8.41%, Colorado's top rate would exceed every single state we compete with. It would land in the neighborhood of Massachusetts, where income above $1 million is taxed at a combined 9%, and Washington, at 9.9%. We would not be drifting toward the Departure States. We would be joining them.
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The Ramifications
Some of the damage would be immediate. Colorado's ability to attract new companies would suffer the day the results are announced — not the day the tax takes effect. The same is true for the people already here who are in a position to act: founders and executives weighing whether to relocate a company, place an expansion elsewhere, or move a family. Those decisions get made quietly and most are not visible to the public.
Equally immediate is how Colorado gets described — in the national press, and more consequentially in the places nobody sees. Site selection consultants, relocation advisors, and the firms that counsel companies on where to incorporate, expand, and headquarter all maintain running assessments of every state. Those assessments would be revised within days of the vote. Colorado would drop further down the priority list. And it will remain there for a long time.
The financial consequences would arrive more slowly. Job growth, capital formation, and the tax base itself erode over years rather than months — which is exactly what makes them so hard to reverse. And we are not speculating about that pattern; we are already living in it.
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▼ 12,100
Net domestic loss, 2025 — first since 2004
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▼ 0.4%
Overall growth — slowest since 1989
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▼ 50%+
Fall in net migration since 2015
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In 2025, for the first time since 2004, more Americans moved out of Colorado than moved into it — a net domestic loss of 12,100 people. Colorado still grew, but only because births and international arrivals covered the gap. Overall growth ran 0.4%, the slowest since 1989, and net migration has fallen by more than half since 2015.
The trend is already established. Initiative 195 would accelerate it.
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Can We Stop This From Happening?
Last issue I put our odds somewhere near Lloyd Christmas's one in a million with Mary Swanson. With the two lists now side by side, I will say it plainly: the odds of stopping this are not good.
Initiative 195 is well funded. Its backers delivered more than 157,000 signatures. To most voters, it will be appealing — a tax cut for 97% of Coloradans, and the wealthiest 3% paying their “fair share.” The ramifications of Initiative 195 for future generations will not be understood by most voters.
Can we stop this? I will echo Lloyd's naive optimism. We have a chance.
Next issue I will begin laying out how we might take it — what has to happen between now and November, who needs to speak up and what they need to say, and what a coalition would have to look like to actually matter.
What are you able and willing to do to help us save Colorado? Reply to this email and tell me.
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If We Work Together, the Sky's the Limit
Colorado can be the most attractive innovation ecosystem in the world, and every Coloradan will share in the economic and cultural prosperity that results from being the world's leading geography for innovation. This is the Innovation Vision for Colorado.
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