Chicago Mayor Eyes Head Tax Revival to Fill Budget Shortfall

Mayor Brandon Johnson is preparing to bring back one of Chicago’s most controversial revenue tools — the corporate head tax — as the city faces a projected $1.15 billion shortfall next year.

That’s according to sources familiar with his upcoming budget proposal, Crain’s first reported.

The tax, enacted in 1973 and eliminated under Rahm Emanuel in 2014, charged companies with 50 employees or more $4 per worker per month, according to the nonpartisan Tax Foundation as well as the Institute for the Public Good, which produced a policy paper in September in support of the proposal.

The concept has been derided by the city’s business community as an anti-growth penalty. The Illinois Policy Institute came out against the head tax, as well as the Chicagoland Chamber of Commerce this summer.

Johnson, who will unveil his third spending plan this week, appears ready to test that argument.

While Johnson has repeatedly vowed to make the wealthy and big corporations “put more skin in the game,” his options are narrow. State law bars the city from extending the sales tax to services or imposing a local corporate income tax, leaving him with politically fraught levers like a head tax, higher cloud-computing levies, or inflation-tied hikes to city fines and fees.

The mayor’s allies have floated a range of proposals.

The Institute for the Public Good proposed a tenfold increase to the previous head tax to $40 per employee on large companies, potentially bringing in tens of millions in annual revenue and also to bring inflation-adjusted and full-time employee equivalent fees up to par with the impact the $4 head tax had in 1973.

Progressive Caucus members floated lower sticker prices. Johnson’s team is said to be eyeing a lower rate, aware that he’ll need at least 26 City Council votes to pass a budget that already faces pushback from moderates and business groups.

Corporate leaders are bracing for a fight.

The Chicagoland Chamber of Commerce warned that another tax on employers would discourage hiring and drive investment elsewhere.

“Adding additional taxes on businesses to fill the budget gap will disincentivize businesses from employing people in Chicago,” CEO Jack Lavin said in a statement. Illinois Policy Institute suggested spending caps, fixing pension debt and other cuts to reign in the budget deficit.

The business pushback comes as the administration also weighs extending a citywide hiring freeze and trimming departmental budgets by up to 5 percent. Unions, meanwhile, are lobbying to prevent layoffs and pressing aldermen to embrace new revenue sources instead.

Johnson’s challenge echoes last year’s bruising budget fight, when his proposed property tax increase collapsed before a final vote.