The damaging effects of Chicagoland’s latest tax hikes

Chicagoans have been burdened with a slew of new taxes and the full damage has yet to be felt. A state income tax hike, like the one proposed in the Illinois Senate’s so-called “grand bargain,” would only further harm struggling Chicagoans.

Chicagoans have been under heavy strain over the past decade. They’ve faced increased violence, weak jobs growth and the incompetence of Chicago-area governments, from Cook County to Chicago Public Schools. City residents continue to face ever-higher taxes and fees – the highest in Illinois – as the dysfunction gets worse.

That’s forced residents of all stripes – from millionaires to middle- and working-class residents – to abandon the city in recent years. Not only did Chicago’s population shrink from 2000 to 2010, but the entire Chicago metro area has also shrunk for two years in a row. In all, Chicago’s population is at levels not seen since 1920.

Unfortunately, things are about to get worse for city residents.

That’s because Chicagoans have yet to feel the full impact of the city and the county’s recent attempts to tax their way out of their structural problems. And if some in the Illinois General Assembly get their way, Chicagoans will have to deal with a multibillion-dollar income tax hike from the state.

Cook County, Chicago Public Schools and the City of Chicago have passed a laundry list of new taxes in the last three years. Their hikes were massive, uncoordinated actions designed to paper over each individual government’s budget crisis.

Unfortunately, all those new tax dollars come from just one place: overburdened Chicagoans.

The 2015 Chicago property tax hike alone costs the average homeowner an additional $500 a year. That’s on top of the city’s new utility taxes, garbage collection fees and Cook County’s sales tax hike that are all pinching Chicagoan’s strained wallets.

Once these new taxes takes full effect, the city will face a reckoning as residents flee to places with that offer greater opportunities and smaller tax burdens.

A deluge of tax hikes

• The City of Chicago enacted numerous tax increases over the past two years. The city is hitting residents with a multi-billion dollar burden to shore up Chicago’s broken pension systems, not to provide new services. The city passed:
  • A record $700 million-plus set of tax hikes in 2015, including:
    • A property tax hike of $318 million in 2015 that will rise to a total of $543 million a year by 2018. The tax is meant to partially pay for the city’s virtually insolvent police and fire pension funds.
    • An additional $45 million in property taxes to pay for capital projects at CPS.
    • An additional $62.7 million from a new garbage collection fee.
    • $60 million in new fees on taxis and ride-hailing services, such as Uber and Lyft
    • $13 million from higher building-permit fees
    • $1 million from a tax on e-cigarettes
  • A $50 million increase on 911 fees, effective in 2015, to pay for city laborers pensions.
  • A new $12 million tax on plastic bags in 2017.
  • A new $40 million “Netflix” tax on movie streaming and other media in 2015
  • A tax on water and sewer utilities that will raise $56 million in 2017 and nearly $240 million annually by 2020.
  • Chicago’s Park District also hiked parking, harbor and program fees by over a $1 million in 2017.

• Chicago Public Schools officials, trapped in a financial crisis of their own making, have hiked taxes on Chicagoans as well. CPS increased property taxes by $250 million in 2016 to pay for teachers’ pensions. That doesn’t include the billions in future taxes Chicagoans are on the hook for due to CPS’ massive borrowing.

• Cook County has also hiked a number of taxes over the past two years, including:
  • A new $74 million sweetened beverage sales tax taking effect in July 2017.
  • A $474 million, 1 percent sales tax increase in 2016. With the increase, Chicago’s combined sales-tax rose to 10.25 percent, the highest combined sales tax rate of any large city in the nation.
  • A new $16 million, 1 percent tax on hotels. The new tax pushed the combined hotel tax burden in Chicago to 17.4 percent – among the top five highest rates in the nation.
  • $6.5 million a year from new fees on e-cigarette liquids and lawsuit filing.
  • A new $750,000, 3 percent amusement tax on ticket-reselling websites in 2016.

These tax hikes aren’t dedicated to creating better schools, safer streets or a better jobs climate for Chicagoans. If they were, residents might be more willing to stick around. Instead, the overwhelming majority of the hikes are paying for the Chicago area’s massive pension crisis.

And if the Illinois Senate gets its way, Chicagoans will have to deal with a round of tax hikes from the state. The “grand bargain” budget threatens to hit Illinoisans with billions in new tax hikes. Another tax increase on top of what’s already been imposed will only push more Chicagoans to flee the state altogether.

Politicians at both the state and city level think it’s easier to pass the bill to taxpayers than to actually tackle the reforms necessary to fix the fundamental problems in government.

But that’s shortsighted thinking. Chicagoans are fed up with their high-tax environment. The more residents are burdened and feel like they are getting a bad deal, the more likely those who can will leave to find better opportunities elsewhere.

Chicagoans don’t need more tax hikes. They need spending reforms.

That’s why the Illinois Policy Institute has provided a reform road map for Illinois government. The plan provides tax relief to struggling homeowners through a comprehensive property tax reform package, implements reforms that begin an end to the pension crisis, and enacts major reforms to spending on healthcare and government worker compensation.