Copyright Chicago Tribune
There are many reasons that Mayor Brandon Johnson’s proposal to impose a new $21-per-job monthly tax on major private-sector employers in Chicago is a terrible idea, and we’ve discussed a number of them already. But there’s yet another negative consequence to highlight, one that strikes right at the heart of one of the mayor’s economic priorities — reinvigorating the Loop. We met Tuesday with the mayor and his finance team to discuss his 2026 budget. As part of a generous, wide-ranging discussion, which we appreciated, they confirmed what we’d heard: Affected companies can reduce the cost of the proposed head tax if their employees work from home more often than they’re in the office. Budget Director Annette Guzman told us any workers who live outside the city and don’t work in the office at least three days a week wouldn’t be taxed. At least as the head tax currently is configured. In other words, the levy would be a government-instituted disincentive to bringing more office workers back to the Loop for the majority of the workweek. That would harm restaurants and retailers who depend on downtown workers for much of their revenue. And it could well set back the fitful improvement in central business district activity that we’ve seen over the past 12 months or so. We asked about this unintended consequence, and Guzman told us, “I think the real question is not to us but to the corporations of Chicago. … If we’re asking if corporations will try to find a loophole, that’s the case with any tax. But I think this is a question of whether or not they are going to make the investment in the city from which they are deriving significant benefits.” Johnson added that Mayor Richard J. Daley originally imposed the corporate head tax in the 1970s at $4 per job per month, and that level stayed flat until Mayor Rahm Emanuel eliminated the tax in 2013. The $21 level, he said, is essentially Daley’s tax adjusted for inflation. And he insisted this tax will be directed only to public safety programs that enjoy widespread support, including in the business community, and won’t be legally allowed to be diverted for other uses. Johnson also advocated for broader modernizing of the state’s and city’s tax code to reflect an economy that’s more digital and service-oriented than it was in Boss Daley’s day. We certainly believe there’s a debate to be had around modernizing taxes — for example, applying the sales tax to some services instead of only goods, as Illinois’ sales tax does now. Most states that have sales taxes apply them to services as well as goods. But, even as he argues that our tax system isn’t keeping up with economic trends, Johnson’s head tax commits exactly the sin he criticizes. It explicitly doesn’t recognize a post-pandemic fact of economic life, one that certainly didn’t exist when Richard J. Daley ran the city. And that reality, of course, is that working from home has proved to be viable in corporate America, even if many CEOs have moved in recent years to require their workers to be in the office more frequently. Speaking generally, downtown Chicago offices today have settled into a three-day-a-week routine. On Mondays and Fridays, many offices are very sparsely populated indeed. How difficult would it be for many of those employers to instruct their employees to come into the office two days a week and substantially trim their head-tax obligations in the process? As to Guzman’s point about loopholes, another fact of corporate life (and indeed this applies to most individuals as well) is that businesses will seek to reduce their tax bills as much as possible through whatever legal means exist. If a tax — particularly a new one loathed by the business community — offers such an obvious way to evade or reduce it, it simply defies human nature to think those business leaders won’t take full advantage of the opportunity. That could lead to companies such as retailers (think Target, CVS, Walgreens) whose employees must come to work having to shoulder more of the burden of this tax than professional services firms whose workers are paid substantially more than those roaming the aisles and manning the cash registers. Companies seek to recover their tax costs when they can, and our relatively low-paid retail workers are likely to see their wages pinched all the more if the City Council approves this tax. We haven’t even mentioned the logistical headache of tracking which employees are in the office more than 50% of the time and which aren’t. How will that work? Will the companies self-report who qualifies and who doesn’t, and how many resources will the city devote to verifying the information? The revival of the head tax is a bad idea for all the reasons we’ve stated before. Stated simply, our visitors said they want to encourage private-sector job growth, and this proposal discourages it. Simple as that. But even if we agreed with the concept, this tax seems extremely difficult to manage in a work-from-home era that Richard J. Daley would have found bizarre.
