Chicago Region Sales Taxes Surge By Nearly $1 Billion

Published June 1, 2008

Sales taxes in the Chicago area could climb $1 billion this year, making Chicago the most expensive city in the United States in which to shop and dine.

The tax hikes have been imposed by the Regional Transportation Authority (RTA), which includes Cook County and five suburban counties, and by the Cook County Board. They come on top of other major tax hikes, including a record $86 million property tax hike and 40 percent real estate transfer tax hike in Chicago, and the imposition of the nation’s first tax on bottled water, also in Chicago.

“The government unions are controlling the whole process. Hire more people, increase pensions, raise salaries. That’s all they want, and they get it,” said Jerry Roper, president of the Chicagoland Chamber of Commerce.

“It’s death by a thousand taxes,” Roper said. “The question is where is the tipping point? When do major corporations view this as a disincentive?”

Border Businesses Worry

Smaller businesses that often operate on thin profit margins and tight cash flow already view the tax rates as a disincentive, said Mindy Phillips, director of the Palatine Area Chamber of Commerce. Palatine is a village of about 68,000 persons in northwest suburban Cook County, near the Lake County line.

“We definitely have been hearing concern over how strong business will be as these taxes come into effect,” Phillips said. “We have a lot of the same retailers here as on Rand Road [a few minutes away] in Lake County. Especially for bigger-ticket items, people might decide it’s worth that short drive to save on sales tax.”

Phillips added, “From an economic development standpoint, there is definitely concern about building on the Lake or DuPage [County] side of the line instead of the Cook County side.”

Consumers Double-Whammied

The RTA sales tax hike took effect April 1 and applies to general merchandise, qualifying food, drugs, and medical appliances, and items that must be titled or registered in Illinois.

In Cook County, the RTA sales tax rate on general merchandise increased from 0.75 percent to 1 percent. In neighboring DuPage, Kane, Lake, McHenry, and Will Counties, the RTA sales tax rate has tripled from 0.25 percent to 0.75 percent.

Officials estimate the RTA sales tax increase, to fund the Chicago Transit Authority, Metra commuter rail system, and Pace suburban bus service, will cost consumers $530 million a year.

On July 1 the Cook County sales tax jumps from 0.75 percent to 1.75 percent. County officials estimate the tax increase will cost consumers another $426 million a year.

Combining all the sales taxes (RTA, Cook County, state, and city) will give Chicago a general sales tax rate of 10.25 percent on July 1, highest in the nation. For downtown Chicago restaurants subject to the Metropolitan Pier and Exposition Authority sales tax, the total sales tax effective on July 1 will be 11.50 percent.

Lawmakers, Commissioners Fight

The RTA and Cook County sales tax hikes both came after bitter political battles. The RTA tax increase ended almost eight months of special sessions in the General Assembly to address transit funding in the Chicago region. Gov. Rod Blagojevich (D) so angered lawmakers that in April the House, which is dominated by fellow Democrats, overwhelmingly approved a measure to allow citizens to amend the state constitution to allow the recall of the governor and other elected officials.

Lawmakers were angered by antics that included the governor calling sessions he did not attend and spending thousands of dollars on shuttle flights between his home in Chicago and the state capital, where he refuses to live. In one notorious instance the governor left lawmakers hanging to attend a Chicago Blackhawks hockey game.

In Cook County, Board President Todd Stroger originally proposed more than tripling the county sales tax from 0.75 percent to 2.75. He also proposed raising other taxes, including on gasoline and parking.

Half the board rebelled, and as a government shutdown loomed at the end of February, the 17-member board voted 9-8 to raise the sales tax to 1.75 percent, but not before shouting matches between tax-hike supporters and opponents.

“We will lose convention and tourism business,” said County Commissioner Mike Quigley, who opposed the tax hike. “The economy is slowing and raising taxes is exactly the opposite of what government should be doing. We should be priming the pump for the economy to move forward.”

Quigley said the tax-hike supporters “assume voters will have amnesia and forget about it and will reelect them in 2010. If they’re right, well, as Thomas Jefferson said, people get the government they deserve. “Until our local government starts to restructure, it’s going to be stuck in structural deficits,” Quigley noted. “We need a plan to move forward so tax hikes aren’t necessary.”

Supporters of the tax hike–Stroger and Commissioners John Daley and Larry Suffredin–did not return calls seeking their comments for this story.

Tax Hike Far Exceeds Deficit

Stroger said the tax hike is needed to cover a budget deficit of $234 million. Yet Stroger’s own estimates show the county bringing in nearly double the amount needed to cover the deficit, and Stroger’s budget calls for hiring 1,100 new workers.

The budget also does nothing to address illegal patronage hiring allegations leveled in March by a federal court monitor. And it does nothing to address an expert panel’s allegations of poor management and wasteful operations at the Cook County hospitals and juvenile detention center, said Lawrence Msall, president of the Chicago-based Civic Federation, a government watchdog organization.

An outside panel of 15 persons from medical, civic, and labor organizations would be created to oversee the hospital system through 2010, but Stroger would get to name nine of the members with County Board approval, keeping the county government in control.

“The Cook County tax hike was unnecessary and unjustified,” Msall said. “Instead of government efficiencies, they chose to raise the sales tax to the highest level in the United States. Equally frightening is that the current administration does not think their sales tax increase will be enough. They’re already hinting at more taxes.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.