Income Taxes – Create a City Income Tax
|Revenue: $500 million|
|Proponents might argue that an income tax is one of the fairest ways to raise revenue because the amount each resident pays is commensurate with his or her ability to pay. The more income one earns, the more taxes one pays. A proponent might also note that New York City has long had a local income tax. Additionally, administration of the tax would be simple because the City could just piggyback on the State’s income tax structure and have State collect the tax and remit it to the City (this is how the New York City income tax is administered). Finally, none of the revenue raised by the State’s recent income tax increase will be transferred to Chicago through the LGDF. The State’s Commission on Government Forecasting and Accountability, estimates that the income tax increase will raise $6.7 billion annually for the State. If the increase were subject to the LGDF, $670 million (10 percent) of this revenue would go to municipalities across the State and because Chicago has 21 percent of the State’s population, it would receive almost $140 million annually. A local income tax would replace this lost revenue.||Opponents might argue that a local income tax would incentivize City residents to move to the suburbs to avoid paying additional taxes. Others might argue that the City’s revenue should not be dependent on income taxes because income taxes are more responsive than other taxes to the fluctuations of the national economy and therefore create a more volatile revenue base. This volatility could create larger budget shortfalls during economic downturns.|
|Fund: NA||Type of Revenue: NA|
|The revenue appropriations begin on page 16 of the 2011 Annual Appropriation Ordinance. http://www.cityofchicago.org/content/dam/city/depts/obm/supp_info/2011BudgetOrdinance.pdf|
Illinois Municipal League. “IML Legislative Update: Timely LGDF Payments.” April 2011. http://www.iml.org/page.cfm?key=4647&parent=63
 Chicago Metropolitan Agency for Planning. “Understand the State Income Tax Increase.” January 13, 2011 http://www.cmap.illinois.gov/policy-updates/-/blogs/understanding-the-state-income-tax-increase
 The calculation of the AGI for City residents comes from Illinois Department of Revenue data that details AGI by zip code. To obtain an estimate of AGI for all City residents, we simply added up all the AGI for zip codes within the City. That data is available on our website while the source data is available here: http://data.illinois.gov/Economics/IDOR-2009-Illinois-Individual-Income-Tax-AGI-Zip-C/gsp6-dpce
 The effective tax rate is likely lower than the 3% income tax rate that was in place in 2009 due to exemptions for children and spouses.
 See Ill. Const. art. VII § 6(e); see also Commercial Nat’l Bank of Chicago v. City of Chicago, 432 N.E.2d 227, 229 (Ill. 1982).
 Commission on Government Forecasting and Accountability. “FY 2012 Economic Forecast and Revenue Estimate and FY 2011 Revenue Update.” March 10, 2011. pg. 20. http://www.ilga.gov/commission/cgfa2006/Upload/FY12econforecastrevestimate.pdf
 Cordes, Joseph J.; Ebel, Robert D.; Gravelle, Jane G. “Tiebout Model” The Encyclopedia of Taxation and Tax Policy: Second Edition. pg. 437.
 Id.,. pg. 438.
 Post, Kevin. “Property taxes, education rank high in New Jersey.” Press of Atlantic City September 27, 2009. http://www.pressofatlanticcity.com/news/press/new_jersey/article_2991d8c2-ab14-11de-8d29-001cc4c03286.html