New Chicago Budget Gives City Some of the Nation's Highest Tax Rates

As of January 1, Chicagoans and those who do business in the city began paying some of the highest taxes and fees in the nation on items ranging from natural gas to restaurant meals. Another round of tax hikes, on retail sales and hotel lodging, is scheduled to take effect July 1.

The record-setting taxes and fees are the result of a $5.08 billion budget the Chicago City Council overwhelmingly approved on December 15. By a 47-3 vote, the council hiked taxes an estimated $74.6 million. Fees were hiked another $11.1 million.

The approval came despite loud complaints from people in many segments of Chicago's economy, including hoteliers, restaurateurs, liquor store owners, industrial manufacturers, and retailers, all of whom were already paying the highest taxes and fees in the region.

After the vote, Chicago Mayor Richard Daley (D) warned the city council of more to come.

"You think this is difficult? Wait till next year when you want a new school," Daley said.

Region's Highest Taxes, Rising

Among the increases that passed are these:

• A one-quarter percent rise in the city portion of the retail sales tax, taking it from 8.75 to 9 percent, making it the second-highest sales tax in the United States and the highest among major U.S. cities, including New York and Los Angeles, according to the Chicagoland Chamber of Commerce.

• A tax of 10.25 percent on restaurant meals, up from 10 percent. The state restaurant association believes this is the highest restaurant tax in the nation.

• An increase in the city hotel tax, from 3 to 3.5 percent, giving Chicago a total tax of 15.4 percent, highest in the nation.

• A nearly quadruple increase in the tax on natural gas, from 1.4 cents per therm to 5.2 cents per therm.

• A 25-cent rise in the city's parking tax, a 12-1/2 percent increase.

• An increase in the amusement tax from 3 percent to 4 percent on tickets for live performances at venues of at least 750 seats, and from 7 percent to 8 percent for all other amusements, such as professional sporting events. (Tickets at venues that seat fewer than 750 persons are not taxed.)

• A $1 fee for each newly purchased automobile tire.

• A tripling of the city's cigarette tax, from 16 cents to 48 cents a pack.

• A liquor tax increase, from 30 to 37 cents per fifth-of-a-gallon bottle.

Business Community Aghast

After Daley announced his budget proposal on November 9, Donovan Pepper, a spokesman for the Illinois Restaurant Association, said, "There's a 10 percent tax on restaurant meals in Chicago, and the mayor wants to make it 10 and one-quarter percent. Is that amazing or what? Chicago would probably be the highest there is."

Gregg Durham, a spokesman for the Illinois Manufacturers Association, said Chicago has lost 130,000 manufacturing jobs in recent years. The huge increase in the natural gas tax will further hurt manufacturers in the city, he said.

"Anything that raises the cost of doing business will stifle job creation or encourage people to move out of the area," Durham said.

Rob Nash, a spokesman for the Chicagoland Area Chamber of Commerce, said, "When you put these tax increases in context with state-level and county-level tax increases in recent years, to come back in a time of crisis and say we need $80 million more, mainly from the business community, is a tough thing to swallow."

Alderman Pat O'Connor (D) defended the new budget, saying, "This is a good budget for a very bad time," according to the Chicago Sun-Times.

Laurence Msall, president of the Civic Federation, a Chicago-based government research organization, also defended the budget, telling the Chicago Tribune, "What passed today was a no-property-tax-increase budget that made some important steps to address growing personnel costs."

More than 80 percent of Chicago's government costs are related to personnel. The budget includes privatization of some city jobs, such as janitorial work.

Adding to Chicago's tax burden is the Chicago Park District, which also approved its 2005 budget on December 15. That budget calls for a $12 million property tax hike and another $3.1 million in higher fees to residents who want to participate in park district programs or use district facilities.

Though he also supported the park district hikes, Msall told the Chicago Tribune the park district budget is "one of the least transparent budgets of any local government."

Cook County, where Chicago is located, is also considering tax and fee hikes to help close a $146 million budget gap.

Steve Stanek (stanek@heartland.org) is managing editor of Budget & Tax News.