Is the sales tax on services — buried years ago after being branded the “Rahm tax” — about to be resurrected?
Will it someday be known as the “Lori levy”?
Mayor Lori Lightfoot isn’t saying. But she’s also not ruling it out.
One week after telling reporters there is “no question that we’re gonna have to come to the taxpayers and ask for additional revenue,” Lightfoot was asked about an idea that she, herself, raised during the mayoral campaign.
That is, asking the Illinois General Assembly to empower the city to broaden its sales tax umbrella to include an array of professional services still not taxed in an economy that is becoming increasingly more service-oriented.
“We’re looking at a variety of options. I’m not ready to roll those out. … But, we’ve been engaged with our partners in Springfield — from the governor to legislative leaders of both parties and individual members who touch Chicago — to talk to them about the challenges that we see going into next year and talking with them collaboratively about a range of possible solutions,” she said.
“We’ll be rolling out the specifics in the next few weeks here. But certainly, looking at every option, measuring the downside risk to different ways in which we can generate revenue, is something that we’ve been focused on now for many, many weeks.”
In 2011, Rahm Emanuel campaigned on a promise to extend the sales tax umbrella to professional services.
Then-mayoral candidate Gery Chico promptly branded it the “Rahm tax,” and Emanuel dropped the idea like the hot potato that it was.
One week before her landslide victory over County Board President Toni Preckwinkle, Lightfoot raised the possibility of taxing “high-end” legal and accounting services to generate tens of millions of dollars to satisfy a looming $1 billion spike in pension payments.
“How do we generate revenue that isn’t oppressive to low-wage and middle-wage individuals?” she said then.
“We’ve got to make sure that people of means absolutely pay their fair share. But we can’t do anything that drives businesses out of the city. So this has got to be a conversation — not a dictate from on high.”
At the time, Lightfoot said she hadn’t worked out all the details and acknowledged a service tax would need to be imposed in a “thoughtful” way.
“Looking at the invoices that are sent to clients and tacking on a small tax that would recover from large law firms and big international accounting firms a part of that revenue, I think we could generate a substantial amount — certainly tens of millions, if not more, every year,” she said then.
“That would add a very small tax burden to high-end clients without going back to regressive taxes like ticketing and fines.”
Asked then if she would set her sights on other services such as hairdressers and health clubs, Lightfoot said: “No, no. ... Right now, we’re just looking at law firms and accounting firms. We’d have to have exemptions for smaller businesses that would fall into that category. I’m not talking about taxing the solo practitioner.”
The Civic Federation reported earlier this year that Lightfoot was staring down the barrel of an immediate $277 million spike in pension payments — payments that will rise by $1 billion in 2023 — as a five-year ramp to actuarial funding ends and the road to 90% funding begins.
The corporate fund has a two-year gap of at least $613.9 million — even before factoring in the cost of police and fire contracts, retroactive pay raises for the rank-and-file and the 18-month jump in police salaries for 1,000 newly hired officers.
The mountain of debt heaped on Chicago taxpayers continues to climb, with debt service payments to match. So do settlements and judgments tied, primarily, to allegations of police wrongdoing.
Shortly before Emanuel left office, his Chief Financial Officer Carole Brown revised the first-year deficit upward to $700 million after acknowledging that the four city employee pension funds had fallen short of the assumed 7% return on investments.
But, Lightfoot said that $700 million figure isn’t high enough.
“It’s worse than that,” she said.
During the historic spring session, Lightfoot managed to get the Chicago casino that has eluded her predecessors for decades by dropping her demand for municipal ownership and agreeing to accept one-third of the proceeds.
She also fended off efforts by ride-hailing giants Uber and Lyft to preclude the city from raising ride-hailing fees.
But, the new mayor got no direct help to close her own budget shortfall, raising the stakes for the fall veto session.