What Brandon Johnson’s tax plan needs from Chicago aldermen, Springfield

Chicago’s incoming mayor, Brandon Johnson, has a long list of tax proposals for the city, but he will have to get all of them past the City Council and some past the Illinois General Assembly.

Chicago mayor-elect Brandon Johnson has some big plans for raising revenue for the city: $800 million in new taxes.

Here is his list:

• $100 million from taxing financial transactions at a rate of $1 or $2 for every “securities trading contract”
• $400 million over four years from raising the real estate transfer tax on high-end home sales, commercial, apartment and other properties worth more than $1 million
• $98 million from “making the big airlines pay for polluting the air”
• Over $20 million from reinstating the $4 per month, per employee “head tax” on “large companies” that perform at least half their work in Chicago
• $30 million from increasing one of the nation’s leading hotel taxes
• $100 million from new “user fees on high-end commercial districts frequented by the wealthy, suburbanites, tourists and business travelers.”

How likely is it Johnson will be able to implement these taxes? Chicago is considered a “home rule municipality,” which in Illinois means the city retains all powers the state or constitution does not explicitly deny it.

To limit the city’s taxing power by statute, the Illinois General Assembly must pass a bill with a three-fifths majority. As such, Chicago has a great deal of leeway when it comes to imposing taxes. But Johnson can’t impose any tax he wants, even in Chicago. Several of his proposals will be limited by state law and the Illinois Constitution.

Financial transactions tax

Johnson has proposed a tax on financial transactions of $1 or $2 per transaction. This proposal could drive the entire sector to pick up and leave, as they have threatened before. However, this tax appears to be prohibited by state law. 35 ILCS 820/2 reads: “…home rule units shall not have the power to levy any tax on stock commodity or options transactions.” To implement this proposed tax, Johnson would need the General Assembly to send the governor a bill to repeal the law, and Pritzker would have to sign it. And because Pritzker has publicly expressed doubts about the tax, getting such a law through could be tough.

Mansion tax

Johnson proposed to raise $400 million from a real estate transfer tax on properties worth over $1 million. Home rule municipalities do have the authority to enact real estate transfer taxes, but state law requires any such tax go to a referendum before becoming law. Johnson would need the General Assembly to amend the law to pass the tax ordinance without a referendum.

Airline jet fuel tax

Johnson wants to tax airlines $98 million for polluting the air. Nothing in state law would prohibit Chicago from collecting this tax. This tax could discourage fliers from coming to the city, but also any of the revenue collected by this tax could only be used for transportation purposes as defined under Article IX, Section 11 of the state constitution. This limitation could make the tax less attractive to the City Council, but there appears to be no barrier to the council imposing the tax.

Employee ‘head tax’

From 1973 to 2014, Chicago imposed a $4 per month, per employee head tax on firms over 50 employees who performed at least 50% of their work within city limits. There is nothing stopping Johnson and the City Council from passing an ordinance to put that back in place.

This is a clear disincentive to hiring, but the dynamics of work life have changed since COVID. If the tax is structured the same, the increasing share of employees coming back to the office could subside, and employees who choose to work from their homes outside the city could diminish any expected revenue gains – at the expense of local brick-and-mortar establishments, such as restaurants, that cater to commuting employees.

Hotel tax

Johnson wants to tax Chicago hotels an additional $30 million. Under Chicago’s home rule powers, Johnson and the City Council could pass this tax hike ordinance without the aid of the General Assembly. But Chicago already has some of the highest hotel taxes in the country, and more taxes would only worsen this status. Tourists might see increased prices and decide to vacation elsewhere.

User fees on high-end commercial districts

Similarly, Chicago’s home rule authority gives it the ability to impose broad user fees – fees to cover the cost of providing government services collected from those consuming those services. Johnson proposes taxing consumers in high-end consumer districts $100 million. But consumers have plenty of options, and many could go elsewhere. Members of the City Council may push back on driving commerce out of the city.

City income tax

A city income tax was not included in Johnson’s tax plan, but instead supported by United Working Families, a group that endorsed Johnson and whose policy positions Johnson has largely adopted. Because Johnson has not officially endorsed this policy, it is unlikely he will pursue a city income tax. Even if he did, Chicago needs authorization in state law to impose a city income tax under the state constitution. The General Assembly would have to pass and the governor would have to sign a bill in order for that to happen.

Conclusion

Johnson has ambitious plans to raise revenue for the city of Chicago. But there are limits to how he can tax Chicagoans. Some of his proposals would require the General Assembly to pass laws or repeal them. In other cases, the constitution limits how that money can be spent. And with the city’s already high tax burden, more tax hikes could drive out residents and deter visitors. Johnson may find closing the city’s budget deficit by raising revenues could be more difficult than it first appears.