With absolutely no idea on how to address Chicago’s multiple financial crisis, Mayor Johnson returns to his tax the rich dogma, which will further accelerate the exodus of affluent residents, jobs, and taxable income
When it comes to solving Chicago’s mounting financial challenges — whether in the city budget, public schools, or transit system — the mayor’s reflexive response is always the same: “Tax the rich.” Mayor Johnson routinely blames affluent residents for systemic problems and proposes higher taxes as the cure for virtually everything. It’s a familiar refrain, rooted more in ideological comfort than fiscal reality. Unfortunately, this one-note approach shows either an unwillingness — or an inability — to grasp the scale and complexity of the crises we face.
Chicago is now confronting three simultaneous and interconnected fiscal emergencies: In the city’s general budget, within Chicago Public Schools (CPS), and at the Chicago Transit Authority (CTA). Rather than take steps to rationalize spending or address longstanding inefficiencies, Johnson continues to double down on a financially ruinous agenda dictated largely by his former employer and political patron, the Chicago Teachers Union (CTU).
Today, our schools consume 56 percent of all local property tax revenue and CPS annually receives nearly $1 billion in additional city subsidies. Chicago is being run increasingly to serve the institutional interests of a union, not the general public. Since 2019, city spending has surged by $6.6 billion — a staggering 62-percent increase. At the same time, per-student spending at CPS has risen nearly 40 percent, even as enrollment fell by 9 percent. The CTA has expanded its operating budget 30 percent since 2019, despite recapturing only 68 percent of its pre-pandemic ridership.
These sharp increases to each budget came despite Chicago, CPS, and CTA receiving nearly $6 billion in federal pandemic relief. Rather than using those funds to scale systems for long-term sustainability, the mayor and his allies chose to pad budgets and expand programs that no longer match post-COVID revenue realities.
Mayor Johnson and CTU President Stacy Davis Gates appear to believe that by pushing a “tax-the-rich” narrative — and pinning blame on convenient villains such as Donald Trump — they can rally their political base and pressure the business community to wring more funding from the state. The CTU has even demanded a special legislative session to address what it calls “egregious underfunding” of public schools, despite CPS spending over $30,000 per student.
The restoration of a city “head tax” that Mayor Johnson suggested last week, as with most of the tax increases he has floated, are largely taxes on businesses. A new Head Tax proposal Johnson appears to be considering originated with the Institute for the Public Good. It would levy a payroll expense tax on Chicago businesses modeled on Seattle’s JumpStart tax. The proposal would levy a 5 percent tax on Chicago businesses with annual payrolls of at least $8 million and employees earning at least $200,000.
In addition to searching for methods to tax the wealthy, late last week, Johnson released a wish list of revenue raising ideas. Suggestions that originated with allies in the City Council and from community groups, the proposed taxes and fees include a new tax on sports betting and driving (a congestion tax) as well as increases in taxes on liquor, restaurant meals, bottled water, checkout bags, and broadening the existing amusement tax. Johnson’s supporters estimate these taxes and fees would rake in slightly over $300 million in revenue.
What Johnson, the CTU, and the Institute for the Public Good fail to understand — or refuse to admit — is that Illinois is entering a downward economic spiral, one from which it may not recover. Since 2000, Illinois has lost more than 1.6 million residents — ranking third nationwide in population outflows behind only California and New York. Chicago’s population is now at its lowest level in a century. What is more troubling is who is leaving: Predominantly younger families, professionals, and middle- and upper-income earners.
The reasons for the exodus are not complicated: High taxes, failing schools, and rampant crime top the list — with high taxes being the most decisive factor. The Lincoln Institute of Land Policy” reported that Chicago has the highest property taxes on commercial property as any city in the US. TWICE the national average. Meanwhile with Pritzker’s 55 tax and fee increases generating over $7 billion in annual revenue, Illinois residents now pay the highest tax and fees in the nation.
It’s little wonder that Illinois ranked 46th in job creation since Governor Pritzker took office, according to Wirepoints. More concerning is that the growth the state has experienced has all been from the growth in public sector jobs, as private sector employment has fallen. A recent survey again showed that more than 50 percent of Illinoisans responding said they would leave the state if they had the means to do so. Expect those with the means to continue to leave in high numbers.
Perhaps even more alarming is the state is not merely losing residents — we’re losing income. In 2022 alone Illinois lost 87,311 residents, along with $9.8 billion in taxable income. That number, however, understates the deeper damage caused by losing individuals at the peak of their earning and spending potential. This of course does not count the full impact on state and local finances from the loss of other tax revenues like property taxes, sales taxes and other consumption related taxes.
Wirepoints reported that from 2012-2022 Illinois has ranked second in the nation for its loss of over 60,000 residents earning more than $200,000. This loss amounts to a sum of $40 billion. Wealthy residents are exiting at 2.3 times the rate they are arriving. More disturbing is the loss of residents aged 26 to 35 in this income category. These are high-potential, high-contributing taxpayers — exactly the kind a well-functioning state should want to keep and attract.
When during the COVID period, a span of time in which both the state and city accepted a combined $20 billion in COVID relief for operations, Springfield passed record-high budgets filled with tax hikes, accounting gimmicks, and revenue sweeps. While Illinois raised taxes and fees during the pandemic, neighboring states lowered their taxes. A typical family can save over $5,000 per year just by moving across the border. Unsurprisingly, Indiana and Wisconsin are among the top three destinations for former Illinois residents.
And let’s put to rest the myth that the rich do not pay their fair share. According to the IRS, the top 15 percent of income earners paid roughly 72 percent of all federal income taxes in 2022. The bottom 50 percent pay less than 3 percent. The truth is Chicago, like the state of Illinois, has a spending problem, not a revenue problem. It’s no coincidence that Chicago has the highest commercial taxes of any major U.S. city while Illinois residents pay the highest taxes and fees of any state, yet according to a study earlier this year by the highly respected WalletHub, ranks last in economic equity.
Efforts by Mayor Johnson and his supporters, led by the Chicago Teacher Union, to close the city, schools and transit systems massive deficits by targeting high earners, particularly through their businesses, will backfire. Any broad-based tax hikes by the city as well as the state to avoid bringing government spending under control will only accelerate the city and the state’s continued downward spiral. It may be politically expedient, but it’s a fiscal dead end.
