A proposal to move Colorado to a graduated income tax — taxing individuals and businesses at different rates based on their earnings — could generate more than $2 billion in its first year, but it may also weaken the state’s business climate, according to a new analysis from the Common Sense Institute.

Initiative No. 195, backed by the Denver-based think tank Bell Policy Center and a coalition known as Protect Colorado’s Future, would establish a graduated or progressive tax rate, replacing the state’s flat income tax rate of 4.4%.

Under the proposal, those making $100,000 or less would see a reduction in tax rates, while those making $750,000 or more would see an increase of up to 4%. Taxpayers making up to $500,000 a year would still pay 4.4%.

The initiative is still collecting petition signatures, but proponents say it is close to hitting the threshold required to qualify for the November ballot.

According to the Bell Policy Center, the measure would result in lower income taxes for 97% of Colorado residents and 95% of businesses.

According to a fiscal analysis by the nonpartisan Legislative Council, Initiative 195 would generate at least $2 billion in new revenue, which, under the proposal, must be spent on K-12 education, health care, and early childhood care and education.

However, Common Sense Institute’s analysis notes that the state could lose about $186 million per year in individual earnings due to high-income earners and corporations leaving Colorado to avoid higher taxes.

According to the analysis, the state could experience a net loss of about 14 businesses per year and nearly $200 million in corporate profits due to interstate business migration.

Colorado’s net firm migration, or the difference between the number of businesses entering the state versus leaving, is the sixth-worst in the nation, according to a separate analysis by CSI.

“Colorado’s current economic and demographic trends are an important context to the ballot initiative,” said Ross Kaminsky, who authored the analysis. “In an environment in which Colorado is losing competitive edge to other states, voters should carefully consider the potential impacts of adjusting tax rates.”

While the majority of Colorado residents would see a decrease in their income tax rate under Initiative 195, the state’s average income tax rate would actually increase to about 5% because corporations pay a higher distribution of income taxes, CSI argues. That would put the state’s income tax rate higher than all neighboring states except Kansas.

“Raising taxes, even on a small segment of society, will result in tradeoffs,” the analysis stresses.

The analysis added, “Enacting Initiative #195 would raise state-government revenue and reduce income taxes for most Coloradans, but the concentration of its impacts among wealthy residents and highly profitable firms would cause the state to lose wealth, reduce economic activity, and shrink local tax bases. In November, voters may have to decide whether these tradeoffs are worth it.”

Chris deGruy Kennedy, president and CEO of the Bell Policy Center, pushed back on the CSI analysis, calling the organization “another arm of the dark‑money machine” trying to keep Initiative 195 off the ballot.

He said credible academic research shows that “tax flight is a myth,” and argued that groups opposing the measure are trying to block voters from considering a fairer tax structure. Initiative 195, he said, would cut taxes for people earning under $500,000, raise them for higher‑income earners, and generate $2 billion for K‑12 education, child care and health care — “a common‑sense restructuring of our tax code” that he said opponents are targeting.

Initiative 195 has received support from several Democratic leaders, including State Treasurer Dave Young, who previously served on the legislature’s Joint Budget Committee.

Kennedy said an “upside-down tax code” has negatively impacted Colorado’s schools, health care, childcare, and environment for over 30 years.

A separate initiative backed by the think tank Advance Colorado seeks to cap the state’s income tax rate at 4.4%. That initiative is also still in the signature-gathering phase.