Annals of Chicago’s Head Tax

Mayor Emanuel is stepping up his promise to cut the city’s “head tax,” a per-employee tax on medium and large businesses. It’s unpopular, but how’d we end up with it in the first place?

Chicago City Hall

 

Today’s big taxation news: Mayor Emanuel is planning on stepping up the pace in cutting the city’s “head tax” (with a name like that, no wonder it’s unpopular), four bucks a pop on employees making at least $4,300 per quarter at companies with at least 50 workers. For obvious reasons it’s wildly unpopular, not least because it’s semi-regressive and—I think this follows—encourages businesses to maximize temporary, low-paid workers, as Tom Tunney claims in the Sun-Times article. The hook is that Emanuel wants to cut it in half instead of in quarters, but to me the more interesting news was how the sudden urgency relates to the new Ford deal.

I was curious where it came from in the first place. It’s been around for almost 40 years, and really hasn’t changed much: when it was implemented in 1973, the tax was three dollars a head on companies with at least 15 employees. So it’s actually gotten less burdensome over time, applying to fewer businesses and fewer employees, and it hasn’t been adjusted for inflation; it’s barely been hiked at all.

How’d such a burdensome tax get applied back then?

The new tax would produce an estimated $30.2 million next year and would replace a controversial proposed tax on stock and commodities transactions which had brought heated protest from major exchanges and business and financial leaders.

[snip]

Officials of major exchanges—Chicago Board of Trade, Chicago Mercantile Exchange, and Midwest Stock Exchange—contended the taxes on stock and commodities would shift much of their business elsewhere, and they made threats to move out of the city. Such organizations as the Chicago Association of Commerce, Civic Federation, and banker groups supported their position. [Edward Schreiber, Chicago Tribune, 12/5/73]

Oh, and:

It was believed to be the first time since he became mayor in 1955 that Daley had backed down on a major budget or tax proposal.

Stock and commodities transaction taxes have a long and storied history of not being implemented. It might have happened on a national scale during the 1980s or 1990s, but attempts were blocked by a name we’re all familiar with:

Not all of Rostenkowski’s efforts on behalf of Illinois involve bringing in more federal funds. He also plays defense, particularly for Chicago’s futures industry. During both the Bush and Bill Clinton administrations, he blocked transaction taxes that were proposed as a means of funding the Commodity Futures Trading Commission. In a more controversial maneuver on behalf of the industry, he pushed through a special tax provision in 1984 that cut the legs out from under an attempt by the Internal Revenue Service to collect some $300 million from individual commodity traders who had used a tax avoidance device known as a “straddle.”

(That’s an excellent old piece from Illinois Issues by Mark Brown, by the way; well worth your time.)

More recently, folks like Christine Lagarde, Joseph Stiglitz, Gordon Brown, and even Tim Geithner are all interested in various forms of financial transaction taxes. But if Daley the Elder couldn’t make it happen, with his near-undefeated record on budgets and taxes, I wonder if anyone is powerful enough.

 

Photograph: nathanmac87 (CC by 2.0)

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