So it has come to this at last: Having exhausted every tax and fee in sight to balance its way-out-of-whack budget, will the city of Chicago, out of desperation, turn to the only new one left: a city income tax?
Chicago Mayor Lori Lightfoot didn’t mention an income tax in her 6,238-word prepared budget message Wednesday, but she faces a budget deficit of nearly $800 million for fiscal year 2020 and $1.2 billion for 2021. Much of that increase–$134.1 million–will be gobbled up by higher pension costs. The budget also includes $501 million in borrowing to help “balance” the 2021 deficit. Same old game.
Of course she turned to property taxes, beating down homeowners even more from the high levy. She praised herself for seeking only a “modest” 93.9 million in new property taxes. For the average Chicago home valued at $250,000, that will add “just” $56 additional dollars a year to the already high property tax bill. More property tax hikes would loom in the future, as each year an increase would be tied to the rate of inflation.
Might she have any regrets that she was elected mayor now that the coronavirus pandemic has further crippled the city’s already existing financial crisis? As she explained in the budget address, Chicago has suffered staggering revenue collapses: hotel tax, down 77.5 percent; amusement tax down 49.5 percent; ground transportation tax, down 47.8 percent; parking taxes down 48 percent,and gas tax down 35 percent.
In her prepared budget speech, Lightfoot itemized savings by cutting personnel and renegotiating contracts. And this: “We are also seeking five furlough days from all non-union workers. I will take the five days myself.” All of that easier said than done, considering among other things the power of government employee unions.
Lightfoot optimistically held out hope for state and federal aid, but if it doesn’t come, what then?
The free-market Illinois Policy Institute raises the prospect of income taxes not just in Chicago, but also in other financially troubled cities, such as Peoria, Springfield, Alton, Kankakee and Danville.
But even as a necessary last resort to avoid bankruptcy, imposing a hugely unpopular income tax would be difficult. The Institute describes the necessary steps to impose a local income tax, pointing out that there’s a troubling link to Gov. J.B. Pritzker’s proposed graduated state income tax constitutional amendment on the November ballot.
The amendment, as originally proposed in the Legislature, would have prohibited local income taxes, according to an Institute press release. But once in the hands of lawmakers (i.e. House Speaker Mike Madigan and his toady Democrat super-majority), that prohibition disappeared. Things like this don’t just occur by happenstance in Illinois. That lawmakers removed a protection against a local income tax as the quid pro quo to the approval of a state income tax reveals the awful news: Someone (i.e. Madigan and his toadies) had a local income tax in mind and the door now is wide open.
When Lightfoot talks about getting help from the state, is this what she has in mind?
Oh, so tempting, when you look at what New York City gets from its graduated income tax whose bottom rate is 3.078 percent for individuals earning less than $12,000 per year and top rate is 3.876 percent for individuals earning more than $50,000. New York City Comptroller Scott Stringer reported that the city’s income tax take in fiscal 2020 is $12 billion. Although Chicago would reap significantly less, it’s still enough to cause salivation in City Hall.
Because 87 percent of Illinois municipalities face significant revenue shortfalls in 2020, according to an Illinois Municipal League survey, support for a local income tax might find support from several corners of the state. One difficult hurdle, according to the Institute, is the state constitution’s Article VII that allows home rule units of government to impose a local income tax with the approval of the General Assembly, but the requirement that taxes be at the same rate for everyone has been a disincentive.
Adam Schuster, the Institute’s senior director of budget and tax research summed it up:
Illinoisans should be aware that stripping the Illinois Constitution of its flat tax protection could have far-reaching effects that would decimate communities: a progressive city income tax as a quick fix to cash-strapped budgets and an economic crisis. We’ve seen what happens when city leaders get access to new revenue streams – the middle class suffers.
Adding city income taxes to Illinoisans’ already high tax burden would damage struggling municipalities by dampening economic growth and job creation, driving out residents and making it even harder for small businesses to recover.
And, I’d guess, drive more people out of town.