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2016: CHICAGO’S YEAR OF THE TAX HIKE

Illinois Policy Institute
 
To address the city’s worsening financial crises, Chicago politicians turned up the dial on their usual answer to budgetary woes: raising taxes.

• Sales tax hike: Cook County officials voted in July 2015 to raise the county’s sales tax, hiking Chicago’s portion to 1.75 percent from 0.75 percent, brining the city’s combined portion to 10.25 percent from 9.25 percent. The hike went into effect on the first day of 2016, and gave Chicago the highest sales tax in the nation.Chicago’s high sales tax hurts its poorest residents the most, and is a disappointing about-face from politicians. Former Cook County Board President Todd Stroger hiked the sales-tax rate in 2008, and lost his re-election bid to current Board President Toni Preckwinkle in 2010 in large part due to the unpopularity of the tax hike. Preckwinkle repealed the sales tax hike, but by raising it once again – and introducing numerous other countywide taxes and fees – she’s shown her reliance on the typical Chicago politician budgetary playbook of taxing residents as a first solution.

• Property tax hike: Chicago City Council rubber stamped Emanuel’s $588 million property tax hike in Oct. 2015 as part of his 2016 budget. The tax is to be phased in over four years, and Chicagoans were rudely greeted with the first wave in 2016.The average single-family home in Chicago, worth $225,000, saw a 12.8 percent property tax hike, or a $413 increase, compared with the 2015 bill. The property tax bill on that home will total $3,633.When originally passing the tax in 2015, some aldermen cited the fact that the city has lower property taxes than its surrounding suburbs. But that ignores that the city’s collar counties have some of the highest property taxes in the nation, and – compared to residents of other major cities – Chicagoans already pay some of the highest property taxes in the nation, too.
  Lumped in with the new property tax hike in 2015, Emanuel also introduced a new $62 million garbage collection fee, $60 million in new fees on ridesharing services like Uber and Lyft, $13 million from higher building permit fees and $1 million from a new tax on e-cigarettes. Chicagoans felt all those new fees this year, all passed in a single day as part of the mayor’s 2016 budget.
• Water and sewer tax: The water and sewer tax, which will be phased in over four years, could raise a homeowner’s bill by more than $225 by 2020. In 2017, a 59 cent additional tax will be placed on every 1,000 gallons of water used. In 2018, the tax will be raised to $1.28, by 2019 the tax will be $2.01 and finally in 2020, the tax will come to a stop at $2.51 per 1,000 gallons of water.Much like the skyrocketing property taxes and nation’s highest sales tax, struggling Chicagoans will take a lot of the hit. Not only will a larger portion of income be dedicated to heftier utility bills, but prices at coin-operated laundry machines will increase as well.

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• Airbnb tax: Chicago City Council passed an ordinance on short-term rentals in June, which among other strict regulations, imposed an additional 4 percent surcharge on short-term rentals, such as Airbnb. This is on top of Chicago’s existing 4 percent hotel tax.Much like the initial hotel tax, this surcharge will be passed on to the city’s visitors, raising fees and possibly limiting competition if Airbnb hosts choose to no longer offer services.Aldermen cited keeping neighborhoods safe as rationale for the ordinance, though that provides no justification for the tax. A better explanation for the 4 percent tax would be City Council’s urgency to protect the hotel industry. According to the Illinois State Board of Elections, in the past year, aldermen and their ward organizations took in nearly $30,000 from the Illinois Hotel & Motel PAC.
  The Liberty Justice Center is suing the city of Chicago over multiple unconstitutional provisions of the ordinance.
• Satellite TV tax: The city issued a notice in Novemberit was expanding its 9 percent amusement tax to include businesses subscribing to paid programming – a creative way to skirt federal law prohibiting taxing satellite providers the same as cable providers, the latter of which the city already taxes. By directly taxing businesses – such as restaurants or bars who often subscribe to satellite TV for sports packages – the tax is applied directly on the consumer rather than the satellite provider. With this, businesses could be paying more than $400 in new taxes every year.The city’s expansion of the amusement tax comes despite already facing a lawsuit for expanding it in 2015 to internet streaming services such as Netflix, Spotify and Xbox live. The Liberty Justice Center filed that lawsuit on behalf of customers.
• Plastic bag tax: As part of the mayor’s 2017 budget – which aldermen rubberstamped without debate 48-0 – a 7-cent tax will be placed on plastic bags starting next year.This is the second phase of an ordinance on plastic bags. The first phase, which went into effect Aug. 1, 2015, banned chain stores and franchises over 10,000 square feet from using standard thin plastic bags to carry groceries in, required them to provide reusable bags instead.However, the ban has unintended consequences. There is no guarantee consumers would reuse these bags. Therefore, instead of throwing away thin plastic bags, consumers could instead be throwing away bags made of a thicker plastic. There is also research showing using reusable bags could be hazardous for public health – if not cleaned properly, the reusable bags could carry bacteria from raw meat and vegetables.
  The 7-cent tax won’t limit those unintended consequences, but will rather layer an extra burden on top of an already bad policy.

The city will likely continue to look for tax increases. With junk-rated bonds, Chicago and Chicago Public Schools, or CPS, have nearly maxed their ability to borrow. And no Chicago politicians have shown a willingness to make necessary reforms to change the trajectory of the state’s finances.

The city needs substantive reform and lower taxes if it wants to keep and attract residents and businesses. Chicago lost 200,000 residents in the latest decennial census, and with tax hikes the only public policy solution coming from City Council, a greater exodus could be coming.

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