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 The Tax Foundation study indicates these higher sales taxes are
driving consumers away from Chicago businesses and into neighboring suburbs.
Chicago tied with four other major cities as imposing the nation’s second
highest sales tax burden (10.25%) on residents as of July 1. Seattle and
California cities Fremont, Long Beach and Oakland rounded out the second-place
spot.
Tacoma, Wash., claimed No. 1 at 10.30%. Anchorage and Portland tied for the
lowest sales tax rate at 0%.
The national study found that sales tax avoidance is most likely to occur in
areas with a significantly different sales tax rate than neighboring
jurisdictions.
This means major cities with higher sales taxes than surrounding areas are more
likely to see an increase in online and cross-border shopping as residents look
to avoid paying steep rates.
Given Chicago levies sales taxes on residents’ more than 25% higher than nearby
cities such as Naperville or Wheaton, where rates are 7.75% and 8% respectively,
those residents stand to save a lot by shopping elsewhere.
The Tax Foundation research further indicates consumers can and are traveling
from high-rate areas to make major purchases in low-rate markets.
This isn’t a new phenomenon. Evidence from a 2008 Chicago Tribune report found
that Chicago-area residents tend to purchase big-ticket items like cars in
surrounding suburbs or online rather than from city businesses.
Not only does this put Chicago businesses at a competitive disadvantage compared
to suburban retailers, but the city’s reliance on sales taxes raises the threat
that decreases in that revenue will mean tax increases to offset losses.
State lawmakers already passed Public Act 101-0604 in 2019, a law requiring
remote retailers and marketplace facilitators, such as Amazon and Walmart, to
collect state sales tax on residents’ online purchases.
An amendment later that year expanded the law, mandating online business also
collect local taxes for online purchases based on the delivery destination. That
law went into effect Jan. 1, 2021.
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Chicagoans have felt that pain more than most after
the city passed a budget that included a $94 million property tax
hike. Mayor Lori Lightfoot herself described as “likely the most
painful budget we have ever faced.”
But forcing city residents—many already struggling economically from
the effects of the pandemic—to pay more won’t fix the root cause of
Chicago’s budget issues or stop the steady climb of city taxes.
Chicago leaders must address the unsustainable
growth in pension costs that has led to annual shortfalls in city
funding and prevented the city from passing a balanced budget since
2003, otherwise residents will face continued tax increases.
Pension obligations consumed 15 cents of every dollar the city of
Chicago spent in 2021. By 2023, those city obligations will be $1
billion higher than they were when Lightfoot took office in 2019.
There is a solution that would reduce the exponential growth of
Chicago’s pension costs to a sustainable rate while guaranteeing the
current benefits of pension recipients.
Research from the Illinois Policy Institute shows an amendment that
protects already-earned benefits but allows changes to their future
growth rate could enable balanced pension reform.
The amendment would give Chicago leaders several options to reduce
the city’s standing obligations, including pegging automatic annual
benefit increases to inflation, raising retirement ages for younger
workers, placing a cap on pensionable salary, and suspending annual
cost-of-living increases to allow inflation to catch up to past
benefit growth.
For nearly two decades, city leaders have demanded Chicagoans pay
higher and higher taxes to fund the unsustainable benefits they
promised to special interest groups. In return, Chicago businesses
are becoming less competitive while city spending on core services
has been diverted to support pension payments.
If residents want to prevent Chicago from reclaiming the No. 1 rank
for combined state and local sales tax, city leaders will need help
from their counterparts in Springfield, who are the only lawmakers
with the power to fix Illinois’ state and municipal pension crisis. |
