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Restoring Chicago's Economic and Fiscal Health

Ron Baiman, Bill Barclay, Luis Diaz-Perez, Caitlyn Prosapio, June Zaccone

March 21, 2015

Complete report is accessible here.

Executive Summary

Chicago’s next Mayor confronts economic stagnation, unemployment, budget and pension shortfalls. Alack of good jobs, the root of neighborhood economic and social dislocation, cannot be addressed through more or better policing, education or human services, needed as they are. Overcoming26 years of neoliberal policy under the Richard M. Daley and Rahm Emmanuel administrations requires a program to create jobs, fund pensions and the City’s budget. This effort will require new taxes and other funding measures.Because financial trading is Illinois’ most profitable industry, it makes sense to expect the financial sector to contribute substantially to the state and city where it prospers most. Today it does not. Thus, a transactions tax on LaSalle St. Exchanges (A LaSalle St. Tax or LST) represents the most principled, direct and effective mechanism to generate the revenues essential to overcoming Chicago and the region’s most intractable fiscal and economic challenges. The authors estimate a nominal fee applied to trading on the Chicago exchanges could yield between $11 and 12 billion annually to the public purse which can be applied to bolstering services, infrastructure modernization, and shoring up pensions, deficits and debt. They also explain in detail why claims that an LST that raises this much revenue would induce traders, the exchanges, or their electronic trading platforms, to relocate out of Chicago and Illinois are factually unsupportable. A Chicago mayor allied with downstate Illinois legislators facing underfunded schools, concerned farmers and depressed economic conditions, would support a tiny, politically popular sales tax. Leadership committed to economic revitalization and fairness will move this issue forward, using it to apply hard, principled and necessary political pressure on a reactionary administration in Springfield, and in the public arena more broadly. The LST is an essential solution to the lack of revenue at both the City and State levels, as well as a potent platform for strategic coalition building.This document also illustrates how the tax burden in Chicago and the state has shifted increasingly onto the poor and middles classes. Whether through the abuse of the Tax Increment Finance (TIF) regime or the pernicious effects of an imbalanced property tax structure, Chicago’s squandering of public resources has contributed substantially to today’s crises. For example, in each year between2007 and 2012,revenue diverted to TIF funds was significantly more than the pensions’ total employer costs. Moreover, in 2000, the four main pension funds backed by the city of Chicago were not in financial trouble. Chicago’s pension crisis only emerged when TIF revenues soared. TIF revenue in 2000 was below $200,000,000 but exceeded $500,000,000 by 2007.TIF revenue alone can more than fund Chicago pensions.1The authors conclude that TIF financing in Chicago should be radically restructured or terminated.This authors also favorably consider several other measures to raise public revenue, some of which have the added virtue of diminishing the burdens that disproportionately fall on Chicago’s poor and middle class tax payers. Those measures include progressively restructuring the real estate tax, a commuter tax, a city income tax on non-residents and other more targeted alternatives. CPEG offers this overview to highlight how leveraging Chicago’s strategic position can enable policy that capably addresses the inadequacies of Chicago’s tax system. Such an approach will help overcome one of the most serious political economic problems of the 21stcentury: runaway inequality, which largely results from wealth being especially concentrated as it is in the financial sector headquartered in Chicago.


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