The $4-a-month employee head tax despised by Chicago businesses would be cut in half, depriving the city of $23 million in annual revenue, under a surprise ordinance proposed by Mayor Rahm Emanuel on Wednesday.
Emanuel campaigned on a promise to phase out the head tax over four years by lopping off $1 from it each year.
But he opted to do it twice as fast – and eliminate the tax entirely by July 2014 – because the deal that nailed down as many as 2,000 new jobs at a Far South Side Ford plant was contingent on the phase out.
“This was a significant piece of helping us secure the 1,200 jobs at the Ford plant and what they’re gonna add also to the stamping plant across the street. It’s another 700” jobs, the mayor said.
Emanuel noted that every one of the city’s 50 aldermen has heard business owners speak “in very colorful language” about how much they despise the head tax and how big a disincentive it is to creating the jobs Chicago so desperately needs.
“We’re gonna cut this tax. I pledged in the campaign $1 per year to eliminate it by the end. [But] my budget will start the first year with the elimination of $2 and cut it in half,” the mayor said, without saying how he would make up the $23 million in lost revenue.
The head tax applies to roughly 2,700 Chicago companies with more than 50 employees who are taxed at a rate of $4 per employee, per month.
Two years ago, Ald. Tom Tunney (44th), owner of Ann Sather Restaurants, and downtown Ald. Brendan Reilly (42nd) proposed a four-year phase-out to stop an avalanche of private-sector layoffs, only to have then-Mayor Richard M. Daley reject the idea.
To say they were thrilled with Emanuel’s move was an understatement.
“The head tax is a job killer. It is a sign on the highway saying, ‘Please, please do not invest in the city of Chicago,’” Reilly said.
“Thank you so much for finally doing away with this oppressive tax that scares away employers and opportunities for the people of Chicago.”
Tunney called the head tax “one of the most regressive taxes we put on our employers.”
“We also have a train wreck happening when we have to combine mandated health care and jobs by 2014. And people wonder why we’re not adding full-time jobs to the workforce. There is so much coming ahead that employers are very, very nervous about adding full-time equivalents. So they’re playing the games of contractual employees, part-time, employees, seasonal, yada, yada, yada,” Tunney said.
Jerry Roper, president of the Chicagoland Chamber of Commerce, applauded Emanuel for loosening the yoke around the business community’s neck.
“I had a promise from [former top Daley aides] Paul Vallas and Gery Chico years ago that we were gonna roll this back by $1 a year. We talked to Mayor Daley year after year, but we could not get through the budget issues. This mayor realizes that job creation is more important,” he said.
Roper noted that the $4-a-month-per-employee head tax is costing Dominicks nearly $1 million for a work force that tops 20,000 in Chicago.
“This is money that’s coming out of the business community’s pocket just for the privilege of working in Chicago. That’s not the type of tax our city needs to show that it’s a business-friendly city,” Roper said.
“This mayor is listening to the business community and recognizes what it can do if given the right environment to grow.”
Former Mayor Richard J. Daley proposed the head tax in 1974 to ward off a city income tax. It has been a giant thorn in the side of business ever since.
In 1994, Mayor Richard M. Daley lopped a dollar off the head tax, excused businesses with fewer than 50 employees and said it would be the first step toward a gradual phase-out.
It never happened. Three years later, union leaders agreed to a series of pension reforms intended to free up enough cash for a $20 million property tax cut, a $200 million bond issue for neighborhood improvements and another round of head tax relief.
Once again, the head tax promise was broken.
After Daley rejected the proposal by Tunney and Reilly two years ago, he proposed waiving the head tax for two years, but only for newly-hired employees.
Tunney tried again earlier this year, by introducing an ordinance that would phase out the tax over four years, only to be outdone Wednesday by Emanuel.
