Cook County Okays New Taxes, Cuts Sales Tax

Published November 2, 2012

The final costs of purchases of cigarettes, firearms, poker machines, and items totaling more than $3,500 that Cook County, Illinois businesses and residents make outside the county will rise under the county’s new 2013 budget.

The higher costs are the result of new and higher taxes that were first proposed by County Board President Toni Preckwinkle (D). Cook is the nation’s second-largest county and includes the City of Chicago.

Preckwinkle floated the tax increases to help cover a deficit projected at $267.5 million in the county’s $2.95 billion budget for 2013. Even with this deficit, however, Cook County’s budget is $100 million smaller than the budget Preckwinkle was handed two years ago as she took office.

Sales Tax Cut

The tax increases and new taxes come as a final 0.25 percent reduction of the county’s sales tax rate is scheduled to take effect January 1. The cut will put Chicago’s overall sales tax rate at 9.25 percent. This includes the combined state, city, county, and local transportation authority sales taxes. The cut fulfills one of Preckwinkle’s campaign promises and is estimated to save Cook County shoppers $86 million in the next year. The County Board under Preckwinkle’s predecessor had raised the county sales tax 1 percentage point in 2008. The move was extremely unpopular.

Under the tax increases and new taxes, a pack of cigarettes would cost a dollar more. In Chicago, the overall tax on a pack of cigarettes will be $6.67. Only New York City has a higher cigarette tax burden.

Each firearm sold in Cook County would carry a tax of $25, regardless of the price of the firearm. Slot and video poker machines would be taxed $800 per machine. And annual purchases of goods that total more than $3,500 would be charged a 1.25 percent “use” tax if the items are bought outside the county for use inside the county.

Altogether, the taxes would raise an estimated $43.4 million, with the cigarette and use taxes accounting for $25.6 million and $15 million, respectively.

Preckwinkle argues the tax increases would benefit businesses and residents.

Business Angle

“We want to encourage businesses to buy within Cook County,” Preckwinkle said in an October 29 news conference where she announced a modification to the proposed “Buy Local Tax”—raising to $3,500 the exemption on out-of-county purchases from her initial offer of $2,500. “County government is making it easier for local business to thrive in our communities, expand their operations, and hire new workers,” she said.

Retailers are not so sure.

“With the exemption, it effectively means businesses—job creators—are the ones who will end up paying the tax,” said Illinois Retail Merchant Association (IRMA) President David F. Vite.

Vite said rather than support local business, the use tax would extinguish marginal savings companies gain by buying outside the county.

“It’s a nice spin [to say] that it levels the playing field, but the fact is, county businesses would pay more money,” Vite said.

Public Benefit Argument

Preckwinkle says the taxes are intended to fight the two largest drains on the county’s budget: its public health and criminal justice systems.

Preckwinkle says she’ll use the taxes to curb behaviors blamed for bad health, social problems, and crime—meaning smoking, gambling, and violence. She said the targeted taxes would allow further reductions of taxes on other items.

“The higher we increase our cigarette prices, the more we discourage particularly young people from smoking and save [ourselves] the cost of treating people who are addicted to tobacco and nicotine,” Preckwinkle told the Chicago Tribune editorial board.

Some County Board members expressed reservations, particularly regarding the cigarette tax increase. Cook County last raised the cigarette tax by $1 per pack in 2006, After an initial spike in cigarette tax revenue, tax collections plunged. By 2009, the county collected $20.4 million less than it had in 2005, according to county budget records. There are many anecdotal stories of cigarette buyers crossing into neighboring counties or Indiana, where cigarette taxes are much lower, to make their purchases.

Scrimping for Smokes

And a study for the New York State Department of Health released last September points to evidence that as tobacco taxes nationally have risen, low-income smokers have not significantly cut back. Instead they have been spending more of their household income on cigarettes, going from an average of 12 percent to 23.6 percent since 2004.

Similarly, the executive director of the Illinois State Rifle Association said the proposed taxes on firearms and ammunition would have no impact on crime.

Richard Pearson called the proposals a “punishment on the wrong people” and said residents who collect firearms or shoot for recreation would make more gun and ammo purchases outside the county to avoid the taxes.

“The people who buy firearms and bullets in Cook County are not the gang bangers, they’re law-abiding citizens,” Pearson said.

Internet Info

“The Consequences of High Cigarette Taxes for Low-Income Smokers,” RTI International: