The Cook County Fiscal Mess

The approval by the Cook County Board of a whopping full percentage point increase in the county sales tax means that Chicago is now poised to impose the highest sales tax rate in the nation:

CHICAGO – Among the things Chicago wants to be known for, having the highest total sales taxes of any major U.S. city is probably not one of them.

But that’s what it’s getting after the Cook County Board voted Saturday to double the county sales tax to 1.75 percent. When added to the city’s sales tax, the county’ increase has the cumulative effect of setting a 10.25 percent sales tax on goods bought in Chicago.

When the county rate increase takes effect in November, someone buying $100 worth of merchandise in Chicago would pay $110.25.

The rates in New York and Los Angeles are below 8.5 percent. The next highest rate in the country is in Memphis, Tenn., at 9.25 percent.

This more than doubles the county’s share of sales tax (from .75% to 1.75%) and increases the sales tax by 11%.

Both of Chicago’s major newspapers have editorialized against the sales tax increase. From the Chicago Tribune:

For three days, the Cook County Board talked about the needs of county executives, or county departments, or county employees. Rarely did anyone mention the 5.3 million residents citizens whose taxes pay for this oversized and bumbling government.

Sure enough, the 2008 budget approved late Friday reflected Cook County’s true priorities. Board President Todd Stroger, with his broken promises of reform trailing behind him, won a 1 percentage point increase in the sales tax. That’s half of what he had wanted, but still maddeningly unnecessary. The hike will take an additional $426 million per a year from taxpayers. Businesses? In Chicago they’ll be stuck collecting the steepest big-city sales tax in the U.S.: 10.25 percent.

From the Sun-Times:

Too many fed-up Cook County taxpayers simply don’t trust President Stroger and his allies on the county board to spend their money wisely and efficiently. The evidence to the contrary — that the county blows tax revenue on padded payrolls, foolish frills and unnecessary outside contractors — is overwhelming. Until Stroger and the board address this crisis of confidence — by actions, not words — taxpayers and reformers will continue to doubt every move he makes.

People are tired of being played for suckers.

“The key to getting new revenues for Cook County is to first win the confidence of our citizens that the government is being properly managed,” County Commissioner Larry Suffredin said. “Unfortunately, that is not the case in Cook County.”

After getting nowhere all week, Stroger and the board reached a compromise to raise the county sales tax from .75 percent to 1.75 percent. The swing vote came from Suffredin, who demanded in return that Stroger give up control of the hospital system to an independent board of outside professionals. The hike gives Chicago the highest sales tax rate among American big cities.

To understand the mess that Cook County government has created for itself it’s handy to take a look at this report from the Center for Tax and Budget Accountability, a bipartisan not-for-profit organization which includes on its board a number of important local business, labor, and government figures. According to the report Cook County’s annual revenues from sales for 2007 were $370 million (at the current county rate of .75%). By my calculations with a constant level of retail sales county wide at the new rate of 1.75% that would result in sales tax revenues of roughly $863 million. $863 million – $370 million = $493 million or roughly the amount they’re projecting for new revenue.

There are a number of problems with this assumption. The first is simple economics. If the total price (including tax) is higher, you buy less. The second is that the Illinois economy has been slowing for the last year. Cook County retail sales this year may be less than they were last year and, as people tighten their belts in lean times, they’re more likely to look for ways to stretch their dollars a little farther.

Cook County residents are less captives of Cook County retailers than at any time in the county’s history. Not only are most Cook County residents mobile, able to cross county lines to secure better total prices on everything from shoes to refrigerators, but the easy availability of mail order and Internet sales, on which neither the state nor the county captures sales tax (except with the voluntary cooperation of purchasers). At a 10.5% sales tax rate any purchase over about $50, even assuming equal prices in a brick and mortar store compared to an Internet retailer, the savings in sales tax more than pays for the shipping. And as a secondary effect the additional package delivery traffic puts more wear and tear on Cook County streets.

The most ridiculous aspect of the whole debacle is that the tax increase doesn’t solve the problem. Consider this graph (from the link above):

Cook County structural deficit 2007-2025
(click for a larger image)

In just two years county government’s growing deficit will have absorbed this tax increase and then some.

Practically all of Cook County’s expenses are wages and the message of this graph is quite clear: the wages of Cook County employees in aggregate are growing faster than the tax revenues derived are. And, judging by the County Board’s difficulty in arriving at a compromise, faster than the citizens of Cook County are willing to tax themselves to pay for. This tax increase is just a tourniquet—emergency medical treatment. The patient needs major surgery.

7 comments… add one
  • PD Shaw Link

    I think sales and property tax increases are on the table statewide. The General Assembly has significantly increased (a) the pensions local communities must pay police and fire and (b) the amount that must be funded. There is currently a bill to make these benefits retroactive to people who retired before 1971. These are all budget busters that the state mandated, but didn’t fund.

  • DaveC Link

    Does anybody who owns an automobile purchase cigarettes in Cook County anymore, especially in Chicago? My guess is that to the best of people’s abilities, the answer would be “no”.

    And speaking of automobiles, who in their right mind would purchase a vehicle in Cook County?

    Unless there is a law against buying a car in Lake County or Kane County, I do not see why anyone would buy a big ticket item in Chicago/Cook County with such a high tax penalty.

  • Automobiles are a special case. By law if you live in Cook County but purchase a car outside Cook County, you’ll receive a tax bill from Cook for the county portion of the tax.

    The velocity of vehicle purchases is low enough that the reporting isn’t unduly onerous but that’s not the case for other items, particularly those in the $1,000 to $10,000 range. In the case of items with very low margins e.g.computers and other high-ticket electronica I suspect this tax hike will drive what little remains of this kind of retail out of the county or underground.

    Indeed, that’s another factor that I think is being ignored. For lots of people the aggregate tax rate is approaching 50%. Add federal, state, sales, property tax, excise taxes, FICA. At that rate there’s going to be non-compliance.

  • Since I’m unfamiliar with the taxes in the area is food subject to sales tax?

  • DaveC Link

    Well, at least Gov. Blagojevich’s cockamamie Gross Revneue Business Tax of 3% didn’t pass. Can you imagine that? In a simple case, if a grocery store purchased product in Illinois and had it shipped by an Illinois company, that would be a 3% increase in the price of the corndog or whatever from the manufacturer, plus 3% from the shipper, plus 3% from the grocery store. This could go on and on depending on whether the firms hire third party companies as janitors, truck mechanics, etc.

  • Food and medicine are taxed at a reduced rate and, by state law, aren’t subject to the increase in the county tax. That reduces the regressivity of the tax

  • Illinois has problems very similar to those in Cook County for very much the same reasons: lack of willingness to stand up to the public employees’ unions, nepotism, mismanagement, failure to modernize.

Leave a Comment