A Municipal Income Tax Is a Dead End for Chicago

March 15, 2024

Chicago should brace itself for a raft of onerous new taxes

Last week, the Chicago Sun-Times' Fran Spielman reported that Alderman William Hall (6th), the chair of a City Council subcommittee searching for new municipal revenue, strongly implied that a municipal income tax may be in the works. The results of the committee's study are due next month.

The idea of a Chicago income tax has been percolating for a some time.

Only two days after the inauguration of Mayor Brandon Johnson, a funding proposal for Chicago was released by the Action Center on Race and The Economy (ACRE) and the People’s Unity Platform. In a twisted allusion to the 1983 gangster movie, Scarface, it is titled "First We Get the Money.

A funding proposal that caused a sensation throughout the Windy City, the report was cowritten by Saqib Bhatti, a member of Mayor Brandon Johnson's transition team. Johnson quickly disassociated himself from the report's proposals, but the mayor may have done so, Mark Glennon wisely speculated at the time in Wirepoints, only to position himself as a moderate on fiscal matters.

However, one of the report's recommendations, the proposal to raise Chicago's real estate transaction tax to aid the homeless and fund affordable housing, will be up fora vote on March 19, pending an appeal to the Illinois Supreme Court. The authors of the draft call it “Bring Chicago Home,” as do Mayor Johnson and its supporters.

Also touted in First We Get the Money is a proposal to enact income and commuter taxes.

“Mayor Johnson should lobby Springfield to give the city the authority to institute a municipal income tax on high earners who live or work in the city,” it reads. “A 3.5% tax on household income above $100,000 would bring in an estimated $2.1billion a year in new revenue, of which $1.6 billion would be from high-earning Chicagoans and $490 million from high-earning commuters.

Among the cities that collect municipal income taxes are Philadelphia, New York, Baltimore, Cleveland, and Detroit. While New York City turned around on several measures during the mayoralties of Rudy Giuliani and Michael Bloomberg, it seems poised, five years after Bloomberg left office, to return to the miserable ranks of failed American cities. While Detroit is in a class of its own regarding urban collapse, other cities that maintain municipal income taxes are suffering a perpetual torpor.

Put aside your fears — temporarily — that Chicago may turn into the next Detroit. Chicago is in steep decline. Let's say the city is merely headed to a lower, but not lowest status. Let’s take a look at Cleveland. Does Chicago want to be known as a new “Mistake on the Lake?”

Spielman notes in her Sun-Times article that while Hall did not directly address a municipal income tax, he did say that he supports a “fair tax rate,” before going on a rant decrying income inequality.

As for the commuter tax — meaning a commuter income tax — New York, Philadelphia, Cleveland, and Detroit have one. Neither Hall, nor anyone within city government, has so far addressed a commuter tax. The fact it remains unmentioned does not mean it is not being quietly discussed in the City Hall cloakroom.

While a candidate for mayor in 2019, William Daley commented that a commuter tax was worth consideration, which led another candidate for that fifth-floor City Hall office, Illinois Treasurer Susana Mendoza to remark:

“Every city that has a commuter tax — look at Detroit, Philadelphia — they are actually stagnating in terms of their economy. It's been a job-killer.”

PolitiFact, probably trying to protect the big city status quo, ruled Mendoza's statement about commuter taxes “mostly false,” but level-headed thinkers will likely disagree and declare Mendoza's observation as accurate.

And what Mendoza said about commuter taxes can easily be applied to municipal income taxes. Both levies go hand in hand.

After decades of pleading from business leaders, Rahm Emanuel finally repealed the hated head tax in 2014. Nevertheless, another suggestion found in First We Get the Money is to bring it back.

Let us say the goals of the First We Get the Money report are met. Then what? Government has proven itself to be a poor steward of taxpayer money, and in Chicago even more so. 

Chicago government is often inefficient, unresponsive, inept, and corrupt. Does anyone see that changing?

Whatever revenue totals that fiscal experts predict will be collected from any new Chicago taxes, the result will likely be less than what they forecasted. Avoiding taxes, both legally and illegally, is an act that has been done since time immemorial, which will inevitably lead to hikes with the new levies. Progressives, who profess to represent "the people," have a poor grasp of human nature, except for the resounding popularity of handing out free stuff.

People can move out of Chicago. Businesses can relocate. Positions offered could be declined when job seekers learn they'll have to pay a city income tax. Some states have no income tax at all. The city's property taxes are onerous, and Chicagoans endure the second-highest sales tax rate in the nation.

Once Chicago income and commuter taxes are ordained, neither will be repealed. It is a one-way, dead-end street. The $100,000 threshold for a Chicago income tax could be lowered. Similarly, if high inflation continues to plague our economy, $100,000 may not be considered a wealthy yearly salary for long. According to the US Bureau of Labor Statistics, the buying power of $60,000 in 2004 is slightly over $100,000 today, and remember, only the last three years are to be considered high inflation.

The federal income tax initially only applied to the very wealthy.

While approval by the Illinois General Assembly is needed to enact Chicago income and commuter taxes, the threat of either or both becoming law is real.

So far, very few people are angry about it.

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