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IMA Tax Policy Blog

Chicago Attempts Yet Another Tax Increase To Rescue Pensions

Posted by Daniel Savickas, Americans for Tax Reform, on Tuesday, May 24th, 2016

Chicago Mayor, Rahm Emanuel, is trying to save his city’s bleeding pension fund by raising its phone tax for the second time in as many years. This new tax increase is meant to back up a $600 million General Obligation Bond the Chicago government issued.

The decision by Emanuel comes on the heels of the Illinois Supreme Court striking down his previous plan, the Chicago Pension Reform Act (CPRA). Under CPRA, employee contributions to the pension plan would have to be increased 29 percent, and tweaks were made to adjustments in Social Security.

This new phone tax is nothing new for Chicago taxpayers. In 2014, the wireless tax was raised by 56% from $2.50/month to $3.90/month for every phone line, wired and wireless phone. According to Randy Nehert, the President of the Illinois Telecommunications Association, this would cost a family of four an extra $425 a year. That tax was also meant to save the Laborers’ Pension Fund.

This tax, as it stands now, is already the highest in the nation. For perspective, New Yorkers only pay a rate of $1.50/month. In Houston, the rate is 50 cents/month. And, for Los Angeles, that rate is a mere 38 cents, less than ten percent of what Chicago taxpayers are burdened with. Now Emanuel wants to hike the rate once again to save the Pension Fund.

Emanuel is trying to follow through on a promise he made to ex-Governor Pat Quinn, to avoid raising property taxes in order to fund the pensions. However, Emanuel did recently raise property taxes by $700 million, with $588 million earmarked in order to rescue another pension fund for police officers and firefighters.

Now, the Laborers’ Pension Fund is running out of money yet again, in Chicago, and the city government’s solution is to just throw out taxes on their citizens to try and fix the problem. It has yet to work, and Emanuel is not even confident this one will either. The goal of this new tax is only to have the pension fund funded to 90% by the year 2055. The plan is, evidently, to use the same tactic that failed in the past, to partly fix a problem over 40 years.

The Chicago government’s policy will also tax the city’s middle and lower classes out of existence. Most obviously, these types of taxes cut into a greater percentage of lower income families’ paychecks. Below the surface, though, many of these families are using phones as their primary access to the Internet. Tax increases like this are threatening the stability of Chicago’s residents and their access to basic needs. We urge Mayor Emanuel to find other means to save his city’s floundering economy. Read more here.

Source: Americans for Tax Reform

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