Colorado’s family-oriented tax credits gave ‘light and hope’ to one mom — but costs make their future uncertain ...Saudi Arabia

When Bukola Arije received a slew of new and expanded state tax credits last year to help raise her three children, she saw not only a chance to catch up on bills. She also saw a rare opportunity to take her kids out of Colorado and show them that the world is bigger than the square state that Arije has called home her entire life.

And when a car drove into her home one early morning in October, the credits became a vital lifeline. The crash rendered the building structurally unsound and displaced Arije and her kids, with nothing but the clothes on their backs. The money helped her as she tried to piece their world back together.

For Arije, 39, a bus driver for Denver Public Schools, the thousands of state and federal dollars she received through various credits were a life-changing, life-saving cushion — though the state credits’ future is at risk as the state works to square its own budget.

“(The credits) only gave light and hope,” Arije said. “Knowing that you could look forward to knowing, no matter what might come, it will get better.”

Arije’s family was one of the more than 330,000 in Colorado to qualify for the new Family Affordability Tax Credit last tax-filing season, and one of the tens of thousands that qualified for multiple credits. Overall, state lawmakers directed $1.3 billion last year to the family tax credit, an expanded Earned Income Tax Credit and the Colorado Child Tax Credit.

Taken together, the credits were ”the most impactful state credits for addressing child poverty in the US,” according to one of the researchers behind a just-released study.

The study, led by researchers at Washington University and Appalachian State University and backed by Denver-based Gary Community Ventures, found that the three tax credits lifted more than 52,000 Colorado children out of poverty last year — an “incredible” 37% reduction in Colorado’s rate of childhood poverty, said Appalachian State Professor Leah Hamilton, a lead researcher on the report. (The reduction was slightly less than a preliminary 40.5% estimate reported earlier by The Denver Post, as the analysis was still being fine-tuned.)

Overall, the credits dropped Colorado’s child poverty rate to 7.3%, down from 11.6% before the credits, according to the study.

That would give Colorado one of the lowest childhood poverty rates in the country. New Hampshire officially had the lowest childhood poverty rate in the country in 2023, at 8%, according to the U.S. Census Bureau, though Hamilton warned Colorado’s lower rate last year may not be a direct comparison if that state’s tax credits aren’t accounted for.

The study focused on three credits: the expanded Earned Income Tax Credit, the Child Tax Credit and the Family Affordability Tax Credit. The credits are not limited only to families below the poverty line, but the amounts scale down as incomes grow, eventually hitting zero for filers at certain income thresholds.

For the family tax credit, that threshold is $85,000 for individual filers and $95,000 for joint filers. For the child tax credit, it’s $77,000 for individuals and $87,000 for joint filers, depending on their circumstances. The broad eligibility results in benefits to families that don’t show up in direct poverty studies, Hamilton said.

“Even families who may be middle income, they may not have the money to get through the next major car repair,” Hamilton said. “It can take them years to catch up.”

The child tax credit goes to families with children younger than 6 and can be worth up to $1,200 per child for the lowest-income families. The family tax credit reaches those with children 16 and younger, with larger amounts going to families with children younger than 6. It is worth up to $3,273 per child for the youngest children of the poorest families.

The Colorado Earned Income Tax Credit matches a portion of the federal EITC that goes to low-income working individuals and families.

Families can receive all three of those state credits, though the study found that the family credit, which is the most generous, had the biggest impact on poverty rates. The federal poverty line is $32,150 per year for a family of four.

The flexibility of the program, the ease of access and the amount of money invested in the credits put Colorado in a league of its own when it comes to using tax credits to fight poverty, the researchers said. 

“Colorado had the most effective child poverty impacts of any other state tax credit or refundable family tax credit,” Hamilton said.

Further, the low overhead in administering the credits makes the program relatively easy to replicate in other states — if they have the finances and the will to do so, said Hamilton and Stephen Roll, a professor at Washington University in St. Louis who also worked on the study.

But Colorado’s own fiscal mire on the horizon threatens to halt the demonstration, at least temporarily, just as it’s getting off the ground.

Lawmakers hope to keep credit going

Between the state and federal tax credits she received, Arije said she was able to claim about $18,000 in cash assistance. About $8,000 of that came from the state credits, she said.  

The money mostly went to bills and overdue car repairs — “Who has $1,500 laying around in the moment to get things fixed?” she asked; not most people, according to surveys — and also gave breathing room for quality-of-life purchases, like healthier food for her kids. Her middle child is on the autism spectrum, a diagnosis that brings extra expenses to meet her needs and the difficulties of balancing work and care.

In stable times, the money helped Arije give her eldest daughter a chance to go to summer camp and see parts of Colorado that Arije jokes she didn’t know existed.

She was able to sock away about a quarter of the money to take the family to the Dominican Republic — an eye-opening experience of a new culture, giving an appreciation for what’s available back home that will stick with her children for the rest of their lives, Arije said.

But when disaster struck in October, the money proved more vital.

After the house they were staying in was destroyed by a car, she was able to borrow from friends and family, knowing they’d be paid back. Without the credits, Arije wonders what she would have done: Gone without essentials? Racked up suffocating credit card debt to make sure her kids had food and clothes? 

“There is so much that has gone on,” Arije said. “In life, mental health is real. When you have support, it helps you get through those challenging times. I can’t tell you how hard those times were in October, not knowing if we were truly going to be OK.”

But what the future holds for the credits is unclear, since Colorado’s budget-writers designed the expanded aid to shut off if the state budget doesn’t grow at a certain clip.

The money comes from tax collections that are over the revenue cap set by the Taxpayer’s Bill of Rights. The state is projected to fall under that cap this fiscal year, meaning there will be no excess money and no tax credit payments — unless state legislators can find a way to shift money to the program.

Prominent Democrats have called the credits a priority, especially with data showing how effective they have been. They are working on how to further tweak the tax code, especially after last year’s federal tax law passed by Congress resulted in lower state collections and reoriented overall state tax policy.

The state is facing another round of deep budget cuts — this time estimated at $800 million — to make room for rocketing Medicaid costs.

“Those (tax credit) programs are so beneficial, and they make such a positive impact on Coloradans, that I think that’s one of the areas where we’re doing our best not to make cuts,” Senate President James Coleman, who sponsored the Family Affordability Tax Credit legislation in 2024, said. “But then we have to see where else we can.”

Sen. Mike Weissman, an Aurora Democrat, called the family tax credit among the most significant pieces of legislation passed that year. The state tax code, however, closely mirrors the federal tax code, so the changes Congress made in last year’s federal overhaul blew a hole in state revenue.

Protecting the credits is “one of the paramount goals” this session, he said.

“We’re not likely to be able to restore FATC to its full extent for tax year ’26,” Weissman said, referring to the taxes that people will file early next year. “That would be $800 million. But we are thinking about some ways — even if they end up being modest — to reactivate that tax credit, because it is carefully targeted to families bearing the cost of raising children. … Every dollar matters.”

‘Likely trade-offs’ ahead

The credits may end up part of a larger reckoning with how the state budgets. 

“There are likely trade-offs to be made and priorities to be set. Do you want to continue various corporate tax expenditures and loopholes that are not really benefiting the vast majority of Coloradans?” said State Rep. Emily Sirota, a Denver Democrat and chair of the Joint Budget Committee.

But with the state’s ongoing budget crunch, members of the Republican minority wonder if this effort deserves a broader conversation with the electorate.

Senate Minority Leader Cleave Simpson, who described himself as a supporter of TABOR, said backers of the tax credit should take the stories of its success to voters and ask them if they want to continue to give their refunds to the credits.

“I think we’ve just overcommitted,” the Alamosa senator said. “And that’s where the Family Affordability Tax Credit could have and should have been a part of the conversation. Where does it fit in the priority system?”

Rep. Chris Richardson, an Elbert County Republican, likewise questioned the long-term affordability of the program.

The study shows “a huge boon” to those who received the credit, he said, but what about when it’s taken away?

“It’s almost a double whammy to those that were receiving it,” Richardson said.

Roll, the Washington University professor, said losing the credits, even temporarily, would result in more hardship for families, more childhood poverty and more financial risk. In surveys, recipients said they generally waited for the money to hit their bank accounts before they counted on the credits, but the uncertainty still adds volatility to their lives.

Research shows long-term financial stability helps low-income families raise healthier, more productive children and avoid falling into debt spirals. Stability can also help the adults get better jobs through training and education.

But absent long-term help, even short-term support has its benefits, Roll said.

“Consistent and long-term supports are better than temporary supports,” he said. “But even in that year (when families received the credit), being able to avoid that eviction, being able to avoid payday loans that put you in a debt spiral over the long term, being able to build that emergency savings account … those are still benefits that are going to materialize for a lot of families.”

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