Colorado lawmakers concluded a six-day special session on Tuesday, August 26, implementing a three-part plan to address a $750–$800 million budget shortfall: raising taxes, tapping state savings, and approving mid-year spending cuts.

Taxes on Wealthy Individuals and Corporations

The Democratic majority passed a series of revenue measures expected to generate about $350 million this year:

High earners pay more: Individuals making $300,000 or more through “pass-through” businesses—like law firms, medical practices, or real estate partnerships—will lose a tax break. These businesses don’t pay taxes directly; their profits “pass through” to the owners, who report them on their personal tax returns. Regular corporate employees earning $300,000 aren’t affected. This change is expected to generate $46 million this year.

Corporate loopholes closed: Expanding the definition of “tax havens” and ending certain insurance tax breaks will add over $80 million.

Selling tax credits: Colorado can sell up to $125 million in unused state tax credits, generating $100 million upfront. Buyers use these credits to lower future tax bills, while the state gets immediate cash. Small business fee removed: Retailers will no longer retain a 4% handling fee on sales taxes collected, resulting in $28 million in savings.

Some of this revenue will fund Medicaid programs, including reimbursements for providers like Planned Parenthood, which cannot use federal dollars.

Using Reserves and Cutting Spending

Colorado is also dipping into its rainy-day fund, releasing $200–$300 million, and granting Governor Polis the authority to propose approximately $300 million in mid-year spending cuts, with oversight from the Joint Budget Committee. Combined, these steps are expected to close the FY 2025-26 budget gap.

Other Key Measures

School meals: Funding for free school lunches may extend to families on SNAP if voters approve a November ballot measure.

AI law delayed: The enforcement of Colorado’s new AI regulations has been postponed until June 2026, providing businesses and regulators with more time to adapt.

Medicaid support: State-only funds will cover providers like Planned Parenthood, filling a gap left by federal restrictions.

Political Tensions

The session reportedly saw sharp partisan clashes. House Republicans criticized the focus on tax increases rather than cost-cutting measures, while Democrats argued that revenue measures were necessary to protect essential services.

Bottom Line

Colorado is balancing its budget by taxing wealthy pass-through business owners, closing corporate loopholes, selling tax credits, using savings, and trimming agency spending. The approach ensures key healthcare programs and services continue, even as lawmakers navigate political disagreements over the state’s fiscal strategy.

DWN

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