”No man`s life, liberty or property are safe while the legislature is in session.” -old American proverb
That bit of wisdom should have caused Chicago`s business leaders to lose sleep in the last two weeks.
They should have wondered how the Illinois General Assembly would eventually stick them in the neck. They should have paid closer attention, seen it coming and blown the whistle. They should have, but they didn`t.
The damage was done while most eyes were on the main event: 18 days of overtime wrangling between Gov. Jim Edgar and House Speaker Michael Madigan
(D-Chicago) over the income tax surcharge and property tax caps.
As the two sides edged toward compromise, one of the last unresolved problems was how to compensate the City of Chicago for the $45 million it won`t get in the next two years under the revised formula for carving up the surcharge.
One can imagine the logic at the bargaining table: ”Let`s see. Who will squawk the least if we soak them for another $45 million? How about Chicago`s business community? What the hey, it beats taxing voters.”
So here`s what happened.
To get Mayor Richard M. Daley to support the state budget compromise, the legislature last week amended state law to let cities such as Chicago impose two major new taxes over the next two years. Sources familiar with the negotiations predict Chicago`s City Council will soon enact the following:
– A 1 percent ”use tax” on the purchase of tangible goods by Chicago businesses from vendors outside the city. The tax would be similar to the one Chicago already imposes on trucks and cars bought elsewhere. The city is now empowered to extend that tax to any big-ticket item, from computer systems to drywall.
– A tax of up to 5 percent on out-of-state telephone calls initiated within city limits.
”What they`ve done here,” said Sam Mitchell, executive director of the Chicago Association of Commerce & Industry, ”is put the burden on the back of Chicago business. Here are two more reasons not to do business in the city.” Mitchell said he had been lobbying against the telephone tax for two weeks, though he didn`t learn about the ”use tax” until early Thursday, the morning after the House approved the overall compromise.
One could argue that the legislature compensated Chicago`s business community with its 11th-hour passage of the McCormick Place expansion, but city businesses also got hit with the lion`s share of the taxes to pay for that.
Mitchell said he is urging association members to lobby Edgar, asking the governor to scotch the two taxes with an amendatory veto. But it is surely too late for that, because Edgar would be reneging on what was apparently a gentlemen`s agreement between himself and the mayor. Besides, nobody is going to blame Edgar if the city decides to raise taxes on itself.
Daley will pitch the taxes as a closing of loopholes. His top aides are already touting the ”use tax” as way to protect Chicago retailers from competitors in low-tax areas outside the city.
The problem, of course, is that Chicago is again slashing its own economic wrists to make ends meet. No doubt the new taxes will help offset the loss of state surcharge funds. But they also will chase more businesses out of the city to the suburbs and beyond. In the long run, this is fiscal suicide.
The city already imposes an extra 1 percent sales tax that chases shoppers to the suburbs for major purchases. The disparity has decimated auto retailing strips along Western Avenue and all but wiped out appliance-and-furniture districts like that at Belmont and Central Avenues.
Higher city taxes on booze, cigarettes and gasoline have likewise chased scores of big gas stations and discount stores to booming retail strips in Niles, Park Ridge and Oak Lawn.
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Chicago also has the highest utility taxes in the state, a $5-a-month payroll ”head tax” and a combined property tax rate that is surpassed by only a handful of suburbs and results in higher tax bills for businesses than almost anywhere else.
But that`s water over the dam.
Now the legislature has cleared the way for the city to slap significant new taxes on businesses big and small. According to state revenue director Douglas Whitley, the business community will end up paying most of the use tax and interstate message tax.
”That`s just a practical matter,” Whitley said. ”Businesses keep records on what they buy, and those records can be audited by the city.”
As for the telephone tax, which is expected to raise about $22 million a year, Whitley predicted the burden will fall heaviest on companies such as United Airlines (with its new worldwide reservations center near O`Hare), on the Chicago Board of Trade and Chicago Mercantile Exchange, and on such far-flung giants as Amoco, Ameritech and Sears.
Actually, Sears doesn`t have to worry that much because the Big Store is moving most of its offices to the suburbs. The way things are going, they`ll have lots of company.