Chicago Mayor Brandon Johnson, who took office on May 15, is planning to raise an additional $800 million for the city’s dysfunctional municipal government. After defeating pro-police moderate Paul Vallas in a nail-biter election to succeed Lori Lightfoot last month, Johnson now intends on enacting a slew of new taxes that would cripple Chicago’s already struggling financial, real estate, and tourism sectors.
According to his campaign website and statements complied by the Illinois Policy Institute, Johnson’s proposed taxes include:
- $100 million from taxing financial transactions at a rate of $1 or $2 for every “securities trading contract”
- $400 million from raising the real estate transfer tax on high-end home sales, commercial, apartment and other properties worth more than $1 million (over 4 years)
- $98 million from new taxes on airlines (“making the big airlines pay for polluting the air”)
- >$20 million from reinstating a $4 per month, per employee “head tax” on “large companies” that perform at least half their work in Chicago
- $30 million from raising hotel taxes (already one of the highest in the nation)r
- $100 million from new “user fees on high-end commercial districts frequented by the wealthy, suburbanites, tourists and business travelers.”
Chicago, which recently broke into the top 10 ranking of world financial centers, relies on its financial industry as a key driver of the city’s economic success. However, Johnson plans to punish that thriving industry with the imposition of an unprecedented new financial transactions tax. If enacted, Johnson’s tax hikes would hollow Chicago’s financial industry and drive many established firms like Citadel out of the city.
If successful investment and financial firms do leave Chicago for cities with better business climates like Miami and Orlando, they will take the high paying jobs that come with them, thereby reducing the upper income tax base which already provides a disproportionately high amount of funding to the municipal and state governments. IRS data shows that Illinois already lost 105,000 residents to 45 out of 50 states in 2021 alone, including $11 billion in income, and those who left Illinois earned 54% more than those who moved in. Moreover, a financial transactions tax would impair the ability for low- and middle-income taxpayers to secure their retirement savings through investments in financial assets, which generate returns that beat inflation.
Similarly, raising the real estate transfer tax would reduce the incentive for those who own properties worth over $1 million to convert those properties to more productive uses. This effectively reduces the supply of available housing and commercial space available in the city, incentivizing residents and businesses who would have otherwise moved downtown to look elsewhere, such as the suburbs or even nearby Milwaukee. When one considers the fact that property in the city of Chicago already tends to be valued in the 7-figure range, the magnitude of a higher real estate transfer tax becomes more pronounced. In the long run, the city is bound to see a reduction in tax receipts as the real estate market is depressed under the weight of damaging new tax penalties.
Furthermore, new user fees on high-end commercial districts will reduce the amount of commerce in these areas and reduce government revenues as tourists and businesses spend their dollars elsewhere. Rather than add yet another restrictive fee on suburbanites, tourists and business travelers who choose to visit downtown Chicago, Johnson’s new administration should instead foster a pro-business environment by eliminating existing taxes and reducing rates – bringing new dollars and investment to the city’s most treasured neighborhoods.
In addition to “user fees,” Mayor Johnson plans on raising the hotel tax to generate an additional $30 million. The tax burden imposed on hotels will be passed on to tourists and Illinois residents who want to visit the city, while exacerbating the problems faced by the tourism industry in the wake of Covid lockdowns. Rather than attempt to make Chicago a more visitor-friendly destination and begin rebuilding a once-thriving tourism industry in America’s second-largest city, Mayor Brandon Johnson wants to suffocate that industry with new taxes.
In recent years, tax-hiking initiatives similar to Mayor Johnson’s proposals have been overwhelmingly rejected by Illinois residents. In 2020, voters solidly rejected a ballot measure that would have eliminated Illinois’ 5% flat income tax in favor of a progressive, income-based tax structure. Even in Cook County, which comprises most of the population of Chicago, the graduated income tax amendment received 700,000 fewer votes than Joe Biden on the same 2020 ballot – a telling sign of Chicago’s growing weariness towards new and higher taxes.
Moreover, Johnson’s tax hikes would exacerbate the wasteful spending of the Chicago municipal government. Despite comprising approximately 20% of Illinois’ population, Chicago’s municipal budget of $16.7 billion is larger than the budgets of 16 U.S. states and more than 1/3 of the entire state budget of Illinois. Yet those tax dollars are squandered on initiatives that have done little to stimulate economic growth, or even to maintain basic law and order.
Rather than dedicate resources toward Chicago’s notoriously underfunded police department, where more than 1,100 officer vacancies are making residents less safe, Mayor Johnson – who previously advocated for defunding the police as Cook County commissioner – is only willing to give promotions to detectives and direct more funds to creating “spaces for youth to gather safely and responsibly.” Given the track record of Johnson and Chicago’s liberal leadership, it is safe to say that the $800 million in additional revenue generated through Johnson’s preposterous proposals would be wasted away in similar form.
Mayor Johnson has not only showcased an ignorance of basic economic principles with his plan to hike taxes by $800 million, but has also made clear that he has no intention of utilizing those funds effectively and wisely. If Johnson follows through with this plan, it will only accelerate the decline of the once great windy city.