The new image compression standard, JPEG2000, provides higher compression rates for the same visual quality for grayscale and color images than JPEG. JPEG2000 is being adopted for image compression and transmission, e.g. in mobile phones, PDAs, and wearable computers. Depending on the application, images may contain formatted text and graphics data. For graphics images at the same low bit rates, graphics compression methods, such as the graphics interchange format (GIF) and portable network graphics (PNG), outperform JPEG2000 in visual quality. In this paper, we describe problems associated with compressing graphics data with JPEG2000, and propose modifications to a JPEG2000 encoder to minimize distortion for color graphics data by using a model of the human visual system. The visual improvements are quantified by a new measure of distortion.