As the race for Chicago’s next mayor takes shape, city finances are top of mind. Revenue for 2026 is falling short of projections and, in recent weeks, the city’s budget director and acting chief financial officer resigned just as Chicago heads into the 2027 budget season facing a projected $1.16 billion deficit and growing pension pressures. Meanwhile, our credit sits on the precipice of junk, with negative outlooks from three of the four major rating agencies. The city’s fiscal problems are cascading from one crisis into the next.
Predictably, the mayor and his allies offer a familiar diagnosis: insufficient taxation — on corporations and the wealthy not paying their “fair share.” Perhaps they are unaware Illinois imposes a 9.5% corporate income tax rate, one of the highest in the nation. Or that on an index of six major state and local tax categories — spanning sales, property and income taxes — Chicago ranks first overall among the 25 largest U.S. cities, leading both the resident and business categories.
The truth is that if higher taxes were the answer to the city’s financial predicaments, we would have already solved them. Instead, taxes distract from the underlying cause — and arguably contribute to it. The city’s fiscal problems and much of its political dysfunction are downstream of its horrendous economic growth record.
Let’s review some rather depressing data. Since 2002, my analysis shows economic growth in Cook County — the closest official proxy for Chicago’s economy — trailed the broader U.S. in 20 out of 23 years, growing 1% annually in inflation-adjusted real terms versus the nation’s 2.2%. The gap narrowed under Mayor Rahm Emanuel but never closed. The city has trailed the nation under every mayor from Richard M. Daley onward. Compounded, the U.S. economy grew 64% over that stretch. Ours grew only 25%.
Had Chicago merely matched the national average, our economy would be one-third larger today. That missing output, which amounts to $173 billion per year as of 2024, is the investment, jobs and dynamism that give residents and businesses the opportunity to prosper, improve the local quality of life and — critically for city finances — generate a healthy tax base.
Just how much would that healthier tax base have delivered? To estimate the budget effect, I modeled how Chicago’s major taxes respond to growth, using sensitivities calibrated to leading public-finance research. For instance, for every 1% increase in the economy, sales tax revenue rises 0.85%, utility tax revenue 0.35% and transaction tax revenue 1.2%. Had Chicago kept pace with the national economy, it would have collected about $1.1 billion more in nonproperty taxes in 2025 — nearly the size of next year’s projected budget gap. A larger economy also could have supported roughly $570 million more in property taxes while keeping the city’s levy at its 2025 share of the economy.
In the absence of stronger growth, Chicago has repeatedly turned to higher taxes. The sustained climb in new taxes and higher tax rates began after 2014. Since then, the city’s property tax levy has nearly doubled, from $930 million to $1.8 billion. The combined sales tax rate confronting Chicagoans climbed from 9.25% to 10.5%. The city also created a water and sewer tax, extended its amusement tax to streaming and nearly doubled its tax on software and equipment leases, from 8% to 15%. That reliance on higher taxes persists: The city’s own 2025 financial report attributes revenue growth primarily to “higher taxes and fees.”
Based on Chicago’s actual 2025 economy, the mix of taxes and tax rates in place in 2014 would have generated only about $4.7 billion, versus approximately $6.2 billion generated last year by the city’s current tax structure. In other words, Chicago needed about 31% more revenue than the 2014 tax system would have produced. Had Chicago grown at the national rate, that same 2014 mix would have generated about $6 billion, requiring only about 4% more to reach last year’s actual total. Simply put, stronger growth could have made most of Chicago’s post-2014 tax escalation unnecessary.
The effects would extend beyond the annual budget to pensions and schools. In that stronger growth scenario, the $1.1 billion in additional nonproperty tax revenue and $570 million in property tax capacity would together approach $1.7 billion — about 58% of Chicago’s 2025 pension contribution. A larger property base also would have supported more revenue from CPS’ separate property tax levy.
Worse, stagnation strains Chicago’s politics as much as its finances. When the economy doesn’t grow enough, every budget becomes a zero-sum fight over who pays, who benefits and what gets cut. To be sure, growth alone is not sufficient: Budgets still demand discipline, and no mayor controls the national economy. But almost every peer city has done better, so surely we can too. Growth broadens the tax base and gives workers, businesses and government a shared stake in success. It creates room to improve services and fund public priorities without making every gain someone else’s loss.
That brings us back to the mayoral race. The question voters should ask is which candidate can offer a credible growth plan that makes it easier and more attractive to build, hire and invest here — and gives people and businesses more reason to stay. After a quarter-century of stagnation, Chicago can ill afford any more of it. Weak growth risks triggering a downward spiral of higher taxes, deteriorating services and people and businesses leaving. The next mayor’s first job is not finding something new to tax. It is making Chicago grow.
Stuart Loren is a managing director at Fort Sheridan Advisors, where he manages client investment portfolios and is responsible for market and economic analysis. Formerly, Loren was a corporate lawyer in Boston. He lives in Chicago with his family.
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