Growing Wealth Inequality in Colorado
By many measures, the Colorado economy has been growing with low unemployment rates, steady job creation, and rising incomes. But if you take a closer look, Coloradans are not experiencing the benefits of economic growth equally as greater wealth continues to be concentrated in the hands of a small proportion of the population. The top 1 percent in Colorado took home 20 percent of all income in 2020, a bleak reflection of the existing inequality. Meanwhile, approximately one in five Coloradans relies on Medicaid and nearly 600,000 Coloradans received Supplemental Nutrition Assistance Program (SNAP) benefits in 2024. This analysis will explore the distribution of total income over time and across geographies, as well as the intersection with tax policy to better understand the extent and impact of wealth inequality across the state.
Understanding Wealth Inequality
Wealth goes beyond income and earnings and includes the ownership of assets, like a savings account, a home, or a car, minus any debts a person may owe. Wealth is important for building economic security, to withstand financial bumps in the road, invest in one’s future, and can be passed on, securing future generations’ economic security. But when wealth is not distributed equally, some research shows that it has a negative impact on economic growth as it limits consumption and may limit economic opportunity and mobility for people with lower incomes, or those without wealth.
The United States has the most unequal distribution of wealth when compared to peer countries. And wealth inequality across the country is only growing as fewer people hold more and more wealth. There were some reductions in wealth inequality during the COVID-19 pandemic in the United States, potentially due to the stimulus checks. Around this same time, the federal Child Tax Credit was expanded, which reduced poverty and may have also contributed to some declines in inequality. However, some wealth gains started to decline in 2022 with increasing inflation and the expiration of pandemic support leaving the distribution of wealth deeply unequal. In 2024, the top 10 percent of U.S. households held 67 percent of total household wealth. In comparison, the bottom 50 percent only held 2.5 percent. As wealth inequality has increased over time, it has become even more dire for people of color, shown in the graph below.
On average, in 2022, a white families’ average wealth ($1.4 million) was six times the average wealth of Black families ($211,596) and Hispanic families ($227,544).
Where Colorado Stands
We lack complete information about the wealth distribution in Colorado as most data isn’t inclusive of all of the factors that drive wealth. Therefore, we separately examine an important component of wealth: income. Total income goes beyond wages and includes social security income and earnings from assets such as interest, dividends, and capital gains. The data we do have suggests that Colorado is likely experiencing similar trends of wealth inequality as the nation.
Distribution of Total Income
Perhaps not surprising with high levels of wealth inequality, we see high income inequality as well. The Gini index, one metric to measure income inequality, shows that Colorado generally follows a similar income inequality trend as compared to the U.S.. A Gini index closer to zero indicates greater equality, while numbers approaching 1 show greater inequality.
Although Colorado’s Gini index shows that as a state we have a marginally more equal distribution of income compared to the U.S. index (0.46 compared to 0.48), Colorado sits near the middle of the pack at 17th most equal compared to other states and Washington D.C.
To put the Gini index into context, according to data from the Colorado Department of Revenue, the top 1 percent of Colorado earners took home about 20 percent of all income in Colorado in 2020.
The 2020 average adjusted gross income (calculated by taking total income and excluding certain tax deductions), of the top 1 percent in Colorado was approximately $1.7 million. In comparison, the average adjusted gross income for the remaining 99 percent of Coloradans in 2020 was approximately $71,000. In other words, on average, the top 1 percent makes about 24 times more than the bottom 99 percent.
An important trend contributing to wealth inequality is that the type of income varies across earners.
For the majority of earners, however, the main source of income comes from wages. Real wages have grown for all earners, but particularly for low wage earners. Despite wage growth, however, earnings for low income workers is far below a living wage, largely due to high cost of living. Large earning disparities remain between men and women and between white and Black and/or Hispanic earners.
As wealth inequality has grown across the country, income from assets has been an increasing source of income for people, particularly for those at the top. Notably, as shown in the graph above, the top 10 percent of wealthiest households nationally see a greater share of their income come from sources such as capital gains, interest or dividends, which are main drivers of long-term wealth inequality.
The unequal distribution of asset ownership, and the income that comes from these assets, is not only concentrated among higher earners, but concentrated geographically as well.
Distribution of Income from Assets by Geography
Colorado leads the country, ranked second in terms of its per capita income asset gap — meaning that residents from some counties in Colorado receive significantly more income from assets compared to other counties in the state.
The large gap between the highest and lowest counties is primarily driven by the mountain communities of Colorado. Pitkin County, where the town of Aspen is located, has the highest per capita income that comes from assets, at $98,000 (in 2019 dollars), followed by San Miguel County ($43,000), Routt ($38,00), Eagle ($33,000), Mineral ($26,000) and Summit ($24,000) counties. Crowley County, the county with the least amount of per capita income from assets sits at $4,200. Just in asset income, the highest earners in Aspen make about 23 times the amount in per capita asset income as those who reside in Crowley County.
In an analysis of income from assets across all U.S. counties, the bottom 15 counties were majority non-white, and had lower rates of post-secondary educational attainment. This is also true for Colorado as the top counties for asset income per capita are primarily white, apart from Eagle county which has a larger Hispanic population.
Assets and Intergenerational Wealth
It should also be noted that assets, in addition to their ability to boost annual income, have long-term value. The value of the asset has the potential to increase in value over time, contributing to one’s wealth. These assets can then be inherited by children and future generations as they continue to increase in value. This accumulation and transfer of assets is a component of intergenerational wealth and also plays an important role in the concentration of wealth. Nationally, inheritance recipients are more likely to be wealthy and have higher incomes.
The accumulation and transfer of wealth across generations underscores the importance of how wealth inequality is perpetuated. However, policies governing the taxation of wealth also play a critical role in shaping the extent of this concentration.
The Role of Tax Policy
Tax policy is an additional factor that influences wealth accumulation and inequality. Tax policy can either aid in the redistribution of wealth, or it can function to uphold or even exacerbate the concentration of wealth. In Colorado, it further perpetuates the inequality we see as the highest earners are able to keep, and ultimately grow, larger shares of their income.
In 2024, the top 1 percent had the smallest share of income, only 7 percent, that went toward total taxes in the state of Colorado, shown in the graph below.
Colorado is ranked the 39th most regressive state and local tax system in the country. This is partially due to high sales and excise taxes and a flat income tax of 4.4 percent, that in certain years will be further reduced to as low as 4.25 percent depending on the size of the TABOR surplus. A flat income tax means that no matter the income level, whether it is $30,000 a year or over $1 million a year, the income is taxed at the same rate. As a result, the share of income that is paid in taxes for the highest earners is smaller compared to lower earners. In addition to taxing all income at the same rate, Colorado does not tax inheritance. It should also be noted that the wealthy are able to take advantage of and get more value from tax deductions compared to lower-income households.
The alternative to a flat income tax rate is a progressive income tax. A progressive, or graduated, income tax would tax those with higher incomes at a higher tax rate. This reduces some of the income disparities and the revenue raised can in turn fund important programs that are proven to increase economic mobility like public education and helping families afford the high costs of child care, housing, and healthcare. Notably, TABOR constitutionally prevents the state from having a progressive income tax, a reality which continues to perpetuate income and wealth inequality in our state. Colorado’s tax system does have some progressive characteristics such as a refundable Earned Income Tax Credit and the refundable Child Tax Credit. Despite this, we still see a more regressive tax system overall.
Conclusion
Wealth inequality is indicative of systems that do not provide everyone an equal chance to succeed. Too many Coloradans struggle to attain economic security and must rely on public assistance while the top 1 percent of Coloradans capture 20 percent of all income. And while total income continues to rise, particularly from asset ownership, these gains benefit only a small segment of the population. Unfortunately, in Colorado, our policy decisions play a role in perpetuating this inequality. If left unaddressed, wealth inequality will continue to undermine economic security for Coloradans and hinder a more fair and prosperous state.
