Mayor Brandon Johnson, facing a yawning budget deficit, could be in for a fight with corporate tax proposals

Chicago Tribune

2 days ago

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 'make the ultra-rich pay their fair share,' but also infuriate business opponents already set on defeating him in 2027.
Facing a more than $1 billion deficit and having disavowed a property tax hike, Johnson last week said he would consider the return of a per-employee 'head tax' on businesses or a much bolder payroll expense tax. Either would be a major shot across the bow of the city's corporate class.
He told reporters Tuesday his administration would take a serious look at how 'individuals with means, particularly our billionaires and the ultra-rich who have benefited from a growing economy, can put more skin in the game' by contributing to the city's violence reduction and affordable housing efforts.
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.
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't push a property tax hike for 2026, which had dim prospects of passing the City Council anyway. The mayor's office late last week shared its estimates for what nearly three dozen new or expanded taxes, fees or revenue schemes might raise.
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's concentration of millionaires and billionaires from the group's late July report, though the source of those figures has been criticized as unreliable.
Launched earlier this year, the nonprofit is led by Julie Dworkin — former head of the Chicago Coalition for the Homeless and a leader of the 'Bring Chicago Home' campaign that was a key Johnson initiative — 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.
In their report, they proposed a new 'corporate excise tax' 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's annual revenues by $1.5 billion.
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.
'It 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,' Dworkin said.
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.
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.
'If I'm a business and I'm more mobile or making a decision on whether to come to Chicago, I'm considering what's going on on the local level,' said Jack Lavin, the president of the Chicagoland Chamber of Commerce.
With outside business-backed groups such as Common Ground Collective and One Future Illinois already gearing up to oppose progressive proposals, Lavin said the defeat of Bring Chicago Home and Gov. JB Pritzker's graduated income tax shows that the broader business community 'is better positioned' to win the messaging battle with the public.
'I also think taxpayers in general are tired of the constant increase in taxes and (thinking), 'What are we getting out of it?'' Lavin said.
But Ald. Anthony Quezada, 35th, a mayoral ally, countered that progressive proposals are popular and that 'folks are tired' of 'nickeling and diming small businesses or homeowners or consumers.'
Aldermen largely refused to go along with Johnson's proposed increases to city fines and fees for this year's 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's additional speed cameras to help close the deficit.
This year, most aldermen concede they must pair any new revenue with some cuts or efficiencies. It's not only a political necessity to win over the public, but a fiscal reality that neither cuts nor revenues alone could fill the gap.
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's 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.
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.
Ernst & Young is also looking for ways the city can recover the costs of hosting special events and changes to city fines and fees 'to promote fairness and revenue generation.'
Johnson touted a midyear budget report released Wednesday as 'a clear turning point' for city finances, pointing to stabilizing revenues and a drop in operating costs. A day later, his administration enacted a hiring freeze 'to manage costs responsibly and support core service delivery,' according to a memo shared with the Tribune.
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.
While Quezada said he wanted time to vet the institute's 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.
'We 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,' Quezada told the Tribune.
The institute's pitch is modeled after Seattle's 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.
JumpStart brought in $293 million in its first year and $360 million in 2024. The tax is expected to bring in $430 million this year and $451.5 million next. Grocers and independent contractors are exempt.
But the tax there can be subject to significant swings: Seattle's budget office said about 70% of revenues 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, 'since stock grants represent a notable share of total compensation for technology workers.'
Dworkin said McDonald's, Mondelez, United Airlines, as well as major local banks, law and real estate development firms would likely be the ones to pay here.
JumpStart passed following a yearslong push to tax Amazon. It garnered significant pushback from the city's Chamber of Commerce — including a lawsuit — and other downtown business groups that argued the charge was an income tax 'masquerading as an excise tax.'
Like Chicago, Seattle is constitutionally barred from charging its own income tax. JumpStart backers successfully argued the program isn't an income tax because businesses were barred from passing the tax onto employees, and the chamber dropped its appeal in the summer of 2022. Collections continued throughout the court fight.
Lavin and others predicted a similar Chicago tax, if passed, would end up in court.
'It's an income tax, so I don't think it's constitutional; it certainly will be litigated,' Lavin said.
The mayor's office told the Tribune it is conducting a legal analysis of the institute's proposal and different potential iterations.
A far more modest proposal — which is nevertheless also receiving business pushback — is returning the corporate head tax. Nixed by the Chicago City Council under former Mayor Rahm Emanuel in 2011, Johnson said Tuesday the idea was back on the table.
Back before it was scuttled, companies with 50 or more employees who earned at least $4,300 every three months were required to pay a $4-a-month tax for each of those workers.
The juice from the head tax may not be worth the squeeze for Johnson: The city estimates charging $5 per employee today would net just over $25 million, which wouldn't put a significant dent in a $1 billion deficit.
Johnson said the administration has also 'been looking at' a PILOT, or payment in lieu of taxes, program, as well as a digital ad tax. PILOT programs seek to get nonprofit entities like hospitals, universities, religious and cultural organizations that don't pay property taxes to voluntarily contribute to city coffers.
One of the country's most successful PILOT endeavors is in Boston, which by 2023 raised $35.7 million in cash contributions.
But Boston's success took years to build up and relied on individual negotiations with entities. Replicating that in Chicago would not only take time, but it is complicated by federal funding cuts hitting hospitals and universities.
Despite the initial opposition from the city's business community, longtime Chicago media and political consultant Delmarie Cobb said the mayor could have success with the suite of progressive taxes.
'I think, if the mayor presents it correctly, that progressives will get behind it because this is the kind of creative thinking that we have been asking for,' she said.
Emanuel 'didn't get rid of (the head tax) because he cared about poor people, he did it so his rich friends would feel good about him,' Cobb said. Progressives 'need to have that same kind of aggressive thinking and action when it comes to generating money and making sure that the people who suffer the most as a result of it aren't the people that can afford it the least.'