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Chicago CFO: ‘The City cannot and would not pursue expanding the tax base on our own’

Thursday, May 23, 2024 - Posted by Rich Miller

* Chicago Tribune editorial

This is why Chicago Mayor Brandon Johnson floating a citywide sales tax on services is absurd. All that would do is hand suburban commercial building owners a brutally effective new marketing tool to woo law firms and other service providers now based in Chicago.

The exits to the Oak Brooks, Oak Parks and Skokies would be swift and voluminous. It would be, to paraphrase Shakespeare, “First, let’s expel all the lawyers.”

We’re no fans of increased taxes, but the idea of subjecting services — or maybe some services, be they massage therapists or accountants — to a general sales tax in Illinois merits an honest debate. There is an argument that it is only fair, especially given the massive societal expansion in our spending money on “services” and the associated decline in how much we spend on goods. Expanding the sales tax to services also would allow for lowering the painfully high sales tax on goods, particularly in Chicago. That idea deserves an airing.

But applying those taxes just in Chicago is a terrible idea, especially since enthusiasm for these schemes varies in Springfield. Chicago could well find itself permanently rendered as non-competitive. Where restaurants go now, lawyers soon would follow. Fortunately, like many of Johnson’s other revenue-raising ideas (and there are many), this one is likely to go nowhere, since Chicago appears to need state approval in order to proceed.

* Chicago’s CFO Jill Jaworski reached out to talk to me this week about my post on this very topic the other day, so I asked her to read the Tribune editorial and provide a response to both the Trib and myself…

The City’s financial team has been analyzing the value of the State expanding sales tax to services, and views a potential expansion as an opportunity to make our sales tax fairer and more equitably applied. The City cannot and would not pursue expanding the tax base on our own, but we look forward to engaging with State officials, legislators, fellow municipalities and other governments that have a sales tax to have a robust discussion on how we can move this initiative forward.
 
Illinois is one of a small number of states that only tax goods, which has resulted in a narrowing tax base for the State and all of the entities, including Chicago, that impose a sales tax. Consumer spending has steadily trended towards services, such that today 70% is for services and only 30% of consumer spending is for goods. This magnifies the regressive nature of sales taxes. Upper income earners overall are spending a larger share of their income on services than lower income earners. Ideally, expanding sales taxes to a broad range of services would allow the opportunity to adjust sales tax rates downward as well. The ability to lower the rate will depend on the willingness to expand to an array of services such that we have a bigger tax base.
 
As the Mayor has noted, we think there are strong benefits to expanding sales tax to services. We are elevating our interest in this solution and look forward to presenting our analyses on the benefits to decision makers and stakeholders alike.

Keep in mind that local governments receive a share of the state sales tax on goods. It would presumably be the same if the state imposed a sales tax on services. As you’ll recall, Gov. Pritzker has so far refused to rule out any revenue ideas to fund mass transit, including a service tax. The city is hoping to build on that.

       

14 Comments
  1. - JS Mill - Thursday, May 23, 24 @ 8:20 am:

    =Consumer spending has steadily trended towards services, such that today 70% is for services and only 30% of consumer spending is for goods. This magnifies the regressive nature of sales taxes.=

    Ralph Martire circa 2004 would like a word.


  2. - Philo - Thursday, May 23, 24 @ 8:57 am:

    The Illinois Constitution’s uniformity clause makes it hard to cherry pick which services get taxed and which don’t. That means it’s hard to exclude services that might be politically unpopular to tax. This has been an obstacle to expanding the tax to services in past years. When legislators find out it’s largely all in, they balk.


  3. - low level - Thursday, May 23, 24 @ 9:52 am:

    Its been discussed for decades now. Something should be done.

    The administration is very fortunate to have Jill Jaworski.


  4. - LastModDemStanding - Thursday, May 23, 24 @ 12:15 pm:

    Only 3 states tax all services- West Virginia, New Mexico, Hawaii, and South Dakota. Many have taxes on things like amusement, but we would certainly be an outlier taxing ALL services. This should be an important note of this conversation when the City, legislators, fringe groups etc. start promoting these sort of tax increases.


  5. - Julie - Thursday, May 23, 24 @ 12:48 pm:

    == This is why Chicago Mayor Brandon Johnson floating a citywide sales tax on services is absurd. All that would do is hand suburban commercial building owners a brutally effective new marketing tool to woo law firms and other service providers now based in Chicago.==

    Rest assured, the marketing on this issue has already begun. The mayor may erode his tax base by trial balloon. No one one will want to be in town for the final act of the play.


  6. - JS Mill - Thursday, May 23, 24 @ 12:51 pm:

    =Only 3 states tax all services- West Virginia, New Mexico, Hawaii, and South Dakota.=

    4


  7. - Rich Miller - Thursday, May 23, 24 @ 12:52 pm:

    ===The mayor may erode his tax base by trial balloon===

    You apparently only read the first part.


  8. - NickNombre - Thursday, May 23, 24 @ 12:55 pm:

    I’m not sure why the uniformity clause would stop targeted taxes on service. Off the top of my head, Illinois already taxes telecommunications, auto renting, hotel renting, and utility services. Those have not been found to violate the uniformity clause.


  9. - Rich Miller - Thursday, May 23, 24 @ 12:56 pm:

    === the uniformity clause===

    It’s a whole lot more than that https://capitolfax.com/2024/05/20/one-problem-mayor-you-cant-do-this-tax-without-the-legislature-and-the-governor/


  10. - Three Dimensional Checkers - Thursday, May 23, 24 @ 1:25 pm:

    ===This magnifies the regressive nature of sales taxes.===

    Sure, except middle and lower income people still go to the barber, hire lawyers when they need to, and spend money on a variety of services. They feel like they are already taxed enough. Not that they’ll ever listen, but the Mayor and his team should honestly examine the reasons they lost the BCH referendum instead of trying to make the Governor and ILGA demonstrate their obedience by giving the Mayor a blank check to spend money on whatever.


  11. - low level - Thursday, May 23, 24 @ 1:29 pm:

    == should honestly examine the reasons they lost the BCH referendum ==

    OK, in your estimation, why did they lose the BCH referendum?


  12. - Three Dimensional Checkers - Thursday, May 23, 24 @ 3:13 pm:

    ===OK, in your estimation, why did they lose the BCH referendum?===

    They’re very poor stewards of government money.


  13. - Just a Citizen - Thursday, May 23, 24 @ 4:46 pm:

    I believe most citizens of IL believe they are taxed way too much already.


  14. - low level - Thursday, May 23, 24 @ 6:01 pm:

    ==They’re very poor stewards of government money.==

    Meanwhile, the homeless population continues to increase in Chicago. Even more troubling is the numbers of children seen on the streets with their mothers. Previously you always saw men but not kids.

    At least BCH proponents tried something. The groups opposed still have no answers.


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