By Caroline Nutter

On July 4, 2025, Colorado’s budget was overturned with the stroke of a pen. When President Donald Trump signed into law H.R. 1, or the One Big Beautiful Bill Act, he didn’t only cut federal funding by $3.4 trillion, he also cut Colorado’s budget by more than $1 billion.

H.R. 1 expanded corporate tax loopholes — tax breaks like immediate 100% expensing of purchases, loosening restrictions on the minimum tax, and reducing the number of wealthy inheritances subject to estate tax — that amount to billions of dollars in lost revenue federally. So why do these federal changes affect Colorado?

Colorado’s tax code is directly tied to federal law, which means when Congress makes changes, those changes automatically flow into our state. Because of how our system is structured, those changes reduced the revenue Colorado depends on to support families and communities — to the tune of $1.2 billion. Two-thirds of that shortfall comes directly from business and corporate tax breaks.

Taxes aren’t the whole story, either. To offset these tax breaks, H.R. 1 drastically cut funding to Medicaid, SNAP and student loan services that will affect families’ ability to get health care, food and higher education. Working families are asked to stretch further while the rules increasingly tilt in favor of those who need the least help.

All this happened without Colorado state legislators, or those they represent, having a say. As those representatives grapple with a recently introduced state budget that includes cuts to Medicaid, support services for people with intellectual or developmental disabilities and tuition hikes for public colleges and universities, it is more important than ever to attempt to rebalance our tax code.

Legislation being debated now, House Bills 1221, 1222, 1223 and 1289, is a straightforward attempt to respond. It makes targeted adjustments so Colorado is not simply absorbing federal tax changes that move our system further out of alignment. It limits certain expanded tax breaks that disproportionately benefit those at the top and reinvests those dollars into tax credits that help families afford the basics.

That includes strengthening tools like the Family Affordability Tax Credit, which has already helped make Colorado a national leader in reducing child poverty. That is something to be proud of and something worth protecting when federal policy changes threaten to weaken it.

These bills are not about punishing success or singling out businesses. A strong economy depends on businesses, workers and communities all doing well. This is about making sure the rules are working as intended and the benefits of growth are shared more evenly across the people who live and work here.

They are also not a workaround of the law. Legally, they are well within it. The General Assembly has long had the authority to define how state taxable income is calculated, and these changes are structured so any net revenue impact is incidental and minimal under existing constitutional standards.

At the same time, it would be incomplete not to acknowledge the position Colorado is in. The Taxpayer’s Bill of Rights (TABOR) is often described as giving power to taxpayers, but in moments like this, it can have the opposite effect. When Congress changes the tax code in ways that reduce state revenue or shift who benefits, Colorado has very limited ability to respond. We cannot easily undo those changes, even when they move us further away from a system that works for families, because those policies could potentially raise revenue, which legislators are not allowed to do in Colorado.

So we are left reacting, doing what we can within the bounds of the law to restore some balance.

Colorado is not alone in that. States across the country are revisiting their tax codes in light of recent federal changes, making similar adjustments to ensure their systems remain fair and sustainable. In many cases, the kinds of updates proposed here bring Colorado more in line with national norms, not further from them.

As H.R. 1 continues to shred our economy, support services and tax code, we have a responsibility to do everything we can to promote affordability and to rebalance the scales. HB 26-1221, HB 26-1222, HB 26-1223 and HB 26-1289 are sound attempts to do so.

Caroline Nutter is the policy manager at the Colorado Fiscal Institute.