By opening the door to a pair of polarizing corporate taxes, Mayor Brandon Johnson could galvanize a progressive base itching to see him deliver on a campaign promise to \u201cmake the ultra-rich pay their fair share,\u201d but also infuriate business opponents already set on defeating him in 2027.<\/p>\n
Facing a more than $1 billion deficit and having disavowed a property tax hike, Johnson last week said he would consider<\/a> the return of a per-employee \u201chead tax\u201d on businesses or a much bolder payroll expense tax. Either would be a major shot across the bow of the city\u2019s corporate class.<\/p>\n He told reporters Tuesday his administration would take a serious look at how \u201cindividuals with means, particularly our billionaires and the ultra-rich who have benefited from a growing economy, can put more skin in the game\u201d by contributing to the city\u2019s violence reduction and affordable housing efforts.<\/p>\n Johnson and his allies described both business taxes as just two of the numerous options the mayor is considering that might eventually be included in his budget proposal this fall.<\/p>\n A mayoral working group of business and labor officials, aldermen and administration leaders has been meeting regularly behind closed doors to come up with fresh revenues and efficiencies after Johnson said he won\u2019t push a property tax hike<\/a> for 2026, which had dim prospects of passing the City Council anyway. The mayor\u2019s office late last week shared its estimates for what nearly three dozen new or expanded taxes, fees or revenue schemes might raise.<\/p>\n The payroll expense idea emerged from a new think tank with ties to Johnson called the Institute for Public Good. Johnson cited figures about Chicago\u2019s concentration of millionaires and billionaires from the group\u2019s late July report, though the source of those figures<\/a> has been criticized as unreliable.<\/p>\n Launched earlier this year, the nonprofit is led by Julie Dworkin \u2014 former policy head of the Chicago Coalition to End Homelessness and a leader of the \u201cBring Chicago Home\u201d campaign<\/a> that was a key Johnson initiative \u2014 and Ishan Daya, a community organizer who Johnson initially tapped for his budget working group. Daya stepped down from the group after facing backlash over a past video of him tearing down a poster of an Israeli hostage kidnapped by Hamas. He was replaced by Dworkin.<\/p>\n In their report, they proposed a new \u201ccorporate excise tax\u201d that would charge businesses with more than $8 million in annual payroll in Chicago. The rate would be 5% of the cost of payroll for employees who earn more than $200,000. The group estimates, based on census data, that the tax could boost the city\u2019s annual revenues by $1.5 billion.<\/p>\n An Illinois Department of Revenue spokesperson said the agency does not collect information with enough granularity to estimate precisely how many businesses in Chicago have payrolls over $8 million or employees with individual incomes exceeding $200,000. But based on the most recent and complete income data the state does keep, which includes wages but also pension distributions, investment returns and other benefits, just over 93,000 individuals in Chicago in 2022 reported income above $200,000.<\/p>\n \u201cIt seemed like the only options floated were having to massively raise property taxes or cut tons of jobs and city services. So we wanted to come up with a third way,\u201d Dworkin said.<\/p>\n The tax would be well timed, Dworkin argued, after the 2017 federal Tax Cuts and Jobs Act reduced the corporate tax rate to a flat 21% rate from a top rate of 35%, and delivered the steepest savings to high earners.<\/p>\n Soon after Johnson publicly entertained the excise tax idea, the business community pushed back, suggesting that implementing such a tax would not only deter new business and spur relocations out of the city, but would also be unconstitutional.<\/p>\n \u201cIf I\u2019m a business and I\u2019m more mobile or making a decision on whether to come to Chicago, I\u2019m considering what\u2019s going on on the local level,\u201d said Jack Lavin, the president of the Chicagoland Chamber of Commerce.<\/p>\n With outside business-backed groups such as Common Ground Collective<\/a> and One Future Illinois<\/a> already gearing up to oppose progressive proposals, Lavin said the defeat of Bring Chicago Home and Gov. JB Pritzker\u2019s graduated income tax shows that the broader business community \u201cis better positioned\u201d to win the messaging battle with the public.<\/p>\n \u201cI also think taxpayers in general are tired of the constant increase in taxes and (thinking), \u2018What are we getting out of it?\u2019\u201d Lavin said.<\/p>\n But Ald. Anthony Quezada, 35th, a mayoral ally, countered that progressive proposals are popular and that \u201cfolks are tired\u201d of \u201cnickeling and diming small businesses or homeowners or consumers.\u201d<\/p>\n Aldermen largely refused to go along<\/a> with Johnson\u2019s proposed increases to city fines and fees for this year\u2019s budget, nixing a garbage collection cost hike and a bump to the alcohol tax, and forcing the mayor to completely abandon a property tax hike. They did agree to add parking and plastic bag charges, and went along with the mayor\u2019s additional speed cameras to help close the deficit.<\/p>\n This year, most aldermen concede they must pair any new revenue with some cuts or efficiencies. It\u2019s not only a political necessity to win over the public, but a fiscal reality that neither cuts nor revenues alone could fill the gap.<\/p>\n According to a memo distributed to aldermen Thursday and provided to the Tribune, city officials estimated a garbage fee increase could net anywhere from $19.6 million to just under $300 million, depending on the rate. The city\u2019s current garbage collection program, which charges $9.50 a month per dwelling unit, runs a $160 million deficit. But for some aldermen, increasing that charge could cause more of a political uprising than raising the property tax levy.<\/p>\n An additional liquor tax could bring in between $30 million and $90 million, according to the memo, while charging the sales tax rate on services like haircuts or accounting would net between $78 million and $305 million, but would require a state law change. Charging tax on online sports bets could bring in between $8.5 million and $17 million, the memo notes. The administration did not endorse any specific proposal.<\/p>\n Ernst & Young is also looking for ways the city can recover the costs of hosting special events and changes to city fines and fees \u201cto promote fairness and revenue generation.\u201d<\/p>\n Johnson touted a midyear budget report released Wednesday as \u201ca clear turning point\u201d for city finances, pointing to stabilizing revenues and a drop in operating costs. A day later, his administration enacted a hiring freeze \u201cto manage costs responsibly and support core service delivery,\u201d according to a memo shared with the Tribune.<\/p>\n The new hiring freeze follows a similar cost-cutting measure used by the city last year. It allows for hiring in many revenue-generating and safety-related roles, but suspends non-essential travel and overtime for non-public safety jobs.<\/p>\n While Quezada said he wanted time to vet the institute\u2019s corporate tax proposal, he appreciated efforts to find money to continue investing in violence prevention, mental health and affordable housing, rather than searching for cuts.<\/p>\n \u201cWe really need to shift the narrative away from austerity and decay to growth and investment. Progressive revenue streams like this, bold ideas like this, start a really productive conversation,\u201d Quezada told the Tribune.<\/p>\n The institute\u2019s pitch is modeled after Seattle\u2019s JumpStart 2020 payroll expense tax but the group roughly doubled the highest rate there to come up with its tax dollar estimates for Chicago. Today, Seattle charges businesses with payroll expenses over $8.8 million and at least one employee earning more than $189,000. The tax is applied to the total annual compensation paid in Seattle. Rates range between 0.7% and 2.557%, depending on total payroll.<\/p>\n But the tax there can be subject to significant swings: Seattle\u2019s budget office said about 70% of revenues<\/a> from the tax are paid by just 10 companies. Most are in the tech sector, making returns especially volatile during layoffs or stock market fluctuations, \u201csince stock grants represent a notable share of total compensation for technology workers.\u201d<\/p>\n Dworkin said McDonald\u2019s, Mondelez, United Airlines, as well as major local banks, law and real estate development firms would likely be the ones to pay here.<\/p>\n