Head tax will only add to the uncertainty in Chicago's shaky economy
In an era where Chicago struggles to retain businesses, residents, and confidence, the city’s leadership is once again tempted by an old idea dressed up as fairness. Mayor Brandon Johnson’s proposed corporate head tax, a $21-per-month levy on companies with more than 100 employees working in the city sounds simple enough: make big firms “pay their fair share.” How many times have we heard that old saw? This idea has already been tried and failed.
Chicago’s first head tax began under Mayor Richard J. Daley in 1973, charging $3 per employee per month to companies with 15 or more workers. It was one attempt to look for more revenue as manufacturing declined. Over time, inflation eroded its real value; by the 2000s the rate stood at only $4 per employee per month, applying to firms with 50 or more employees, and brought in around $20 million to $23 million per year. The cost of administering the tax was probably greater than the revenue that was brought in.
At its core, a head tax is not a corporate income tax or a progressive surcharge on profits. It’s a fee for employing people, which is a penalty for job creation. A restaurant chain, factory, or warehouse that hires more workers automatically pays more, regardless of whether those workers earn $30,000 or $300,000. The structure is regressive in effect: Hiring an extra worker who provides $300,000 worth of productivity is affected much less than workers that provide only $30,00 worth of productivity.
In Johnson’s proposal, firms with 100 or more employees working at least half their time in Chicago would owe $252 per employee per year. The city expects roughly $100 million in new annual revenue, which sounds significant until measured against Chicago’s $16 billion operating budget, less than one percent of the budget. For this small fiscal return, the city would be reviving a policy that undercuts every economic-development slogan emblazoned on its websites. The tax introduces what economists call a “cliff effect.” Once a firm crosses the 100-employee threshold, its cost jumps suddenly because the levy applies to every worker, not just those above the cutoff. A company with 99 workers owes nothing; at 100, it owes $25,200 per year. That abrupt jump encourages artificial fragmentation of payrolls or relocation of small back-office units outside the city.
Head taxes are rare in the United States for a good reason. Few large cities want to advertise themselves as taxing employment itself. Seattle, which passed a $275-per-employee head tax in 2018, repealed it within a month after Amazon and other employers threatened to scale back operations. In that national context, Johnson’s $252 per-employee levy would be, by far, the largest flat head tax in the U.S., rivaled only by Seattle’s short-lived experiment. It would also be imposed in a region where neighboring jurisdictions DuPage, Lake, and Will Counties levy nothing comparable, making it easy for firms to step a few miles west or north to avoid the charge. Even if the city collected its full $100 million projection, the revenue would barely cover the Chicago Transit Authority’s monthly operating losses, let alone the city’s structural deficit.
The risk–reward calculus looks lopsided: negligible fiscal gain, potentially high reputational and behavioral cost. Once companies view Chicago as punitive toward employers, the marginal calculus for locating new offices or logistics hubs shifts quickly toward suburban alternatives, or alternatives outside of the state. Nor is this a theoretical worry. Between 2020 and 2024, major corporations including Boeing, Caterpillar, and Citadel either left or dramatically downsized their Chicago headquarters. These departures were driven by multiple factors, crime, costs, and national restructuring, but they reveal a city struggling to project stability. In that environment, reinstating a tax literally designed to penalize headcount sends exactly the wrong signal.
Beyond economics, enforcement would be messy. In an era of hybrid and remote work, determining whether an employee “works in Chicago 50 percent or more of the time” invites audit disputes. How are consultants, gig workers, and cross-state telecommuters counted? Each ambiguity requires forms, monitoring, and compliance staff. Chicago, with hundreds of thousands of workers and thousands of multi-jurisdictional firms, would face significant administrative friction. Unlike a city income tax, a head tax is allowed under Illinois’ home-rule authority, so Springfield’s permission isn’t required. But that very ease of enactment through local ordinance alone also makes it unstable. Businesses know it can rise with a single council vote. The old tax stayed frozen at $4 for decades only because political leaders feared backlash; the moment fiscal pressure builds again, rates can increase. That unpredictability is poison for long-term investment planning.
The cautionary tale from Seattle bears repeating. In 2018, the city council adopted a $275-per-employee head tax on large corporations to fund homelessness programs. Within weeks, Amazon halted construction on a new tower and signaled it might move jobs elsewhere. Public backlash was swift: the council repealed the tax 28 days later. Seattle’s replacement — a payroll-expense tax graduated by firm size — now raises far more money ($250 million per year) with less administrative hostility. The moral: even progressive cities can’t sustain a visible penalty on headcount. Recent comparisons of per-employee costs and revenue yields among major U.S. cities make the point visually. Chicago’s proposed $252 per worker towers above Denver’s $4, San Diego’s $5, and San José’s $6. Only Seattle’s abandoned 2018 levy exceeded it. And yet the projected revenue of $100 million is modest, only marginally higher than Denver’s $60 million from a far smaller rate. In short, Chicago would impose the highest cost for the least return.
Chicago’s fiscal challenges are real, but taxing jobs is not the answer. The 1973–2014 experience proved the head tax yields little money and invites big headaches. The economic literature confirms even small per-employee levies distort hiring. Neighboring cities show modest occupational fees can coexist with growth, but only when kept symbolic. Johnson’s proposal is not symbolic. It is punitive by design and regressive in effect.
If the goal is to restore fiscal stability and civic confidence, the city should pursue policies that reward investment, not punish it. Chicago cannot simultaneously market itself as “open for business” and impose a literal tax on employment. In a competitive metropolitan region, companies and jobs will simply move where the welcome mat is, not where the tax bill awaits them.
The problem here is the attitude regarding budget shortfalls. This reminds me of a story at the beginning of the Cold War. As Russian troops ransacked homes in Eastern European countries, the first thing they did as they invaded homes was to look for the perfume. Not diamonds, furs or anything else of value, but perfume. Perfume has a very high alcohol content. The soldiers wanted the booze and were addicted to it. Chicago politicians are addicted to taxes. As addicts they are single minded in pursuing taxes, all taxes.
Read my lips. No new taxes!
