Chicago Mayor Rahm Emanuel has pledged to raise no new taxes or fees despite a budget deficit of nearly $300 million.
“There will be no property tax increase, there will be no sales tax increase, there will be no fuel tax increase,” Emanuel, a Democrat, told reporters at a recent news conference. “We’re eliminating the per-employee head tax … We’re doing it ahead of schedule , and there will be no amusement tax increase.”
Chicago recently has held spending within budget while some key revenue sources have topped projections, according to a recent report of the city’s Office of Budget and Management.
“Due to tight fiscal controls and an improving economy, the City’s expenditures are at or below expected levels, while key revenue sources have exceeded projections,” according to the report.
Big Deficit Remains
The city’s budget office pegs a deficit of $298 million.
“The administration’s aggressive fiscal management and ability to deliver services more efficiently has resulted in millions of dollars of savings for taxpayers,” said Budget Director Alexandra Holt. “We continue to examine every part of city government to determine how we can better serve residents at a more competitive price.”
However, there has been recent speculation that Emanuel might consider raising ‘sin’ taxes, especially on cigarettes. The mayor’s response, perhaps in a preview to his upcoming budget address: “If we do consider a cigarette tax,” he said, “it has to invest in children’s health.”
The city last increased its cigarette tax by 20 cents, to 68 cents a pack, in 2006. A $1-a-pack state hike that took effect in July already makes total taxes on a pack of cigarettes in Chicago $5.67. This is the second-highest per-pack tax in the nation, behind only New York City’s $5.85.
Cigarette Tax Revenues Falling
This hike alone will not be able to fill the budget shortfall. According to city financial records, the city expects to bring in $18.7 million in cigarette taxes this year, compared with $32.9 million just six years ago. City financial reports blame the drop-off on smoking bans, fewer smokers and increases in prices and tax rates that discourage the purchase of cigarettes in the city.
“There seems to be a vicious cycle lately when government raises the tax on cigarettes. Taxes are so high now in some localities, that an increase in the rate actually causes tax revenues to decline,” said John Northdurft, director of government relations for The Heartland Institute. “It’s not good for the government entity, and it is certainly not good for the willing consumer.”
John W. Skorburg ([email protected]) is associate editor of Budget & Tax News and lecturer in economics at the University of Illinois at Chicago.