Chicago City Wire

Chicago is considering reinstating a corporate head tax, an idea previously implemented and later abandoned by the city. Mayor Brandon Johnson has proposed a $21-per-month fee for companies with more than 100 employees working in Chicago. The aim is to generate approximately $100 million in new annual revenue for the city.

The original head tax was introduced under Mayor Richard J. Daley in 1973, starting at $3 per employee per month for firms with at least 15 workers. Over several decades, the rate increased slightly to $4 and applied to companies with 50 or more employees, bringing in about $20 million to $23 million annually before being repealed.

According to critics of the proposal, this type of tax penalizes job creation because it charges businesses based on their number of employees rather than their profits. “At its core, a head tax is not a corporate income tax or a progressive surcharge on profits. It’s a fee for employing people, which is a penalty for job creation,” the statement reads.

The current proposal would apply to firms with 100 or more employees who work at least half their time within Chicago's boundaries. This would amount to $252 per employee each year. Critics argue that this represents less than one percent of Chicago’s operating budget and could harm the city's reputation as friendly toward business development.

Economists have raised concerns about what they call the "cliff effect," where reaching the threshold of 100 employees triggers significant new costs all at once: “Once a firm crosses the 100-employee threshold, its cost jumps suddenly because the levy applies to every worker, not just those above the cutoff.” This could encourage businesses to keep payrolls below that limit or relocate operations outside city limits.

Other cities have experimented with similar taxes but quickly reversed course due to backlash from major employers. In Seattle, a comparable measure passed in 2018 was repealed after only four weeks following threats from Amazon and other large companies to reduce their presence in the city.

“Seattle’s replacement — a payroll-expense tax graduated by firm size — now raises far more money ($250 million per year) with less administrative hostility,” according to commentary on past experiences elsewhere.

Neighboring counties such as DuPage, Lake, and Will do not impose comparable employment-based taxes. As such, moving business operations out of Chicago becomes an attractive option if this policy goes into effect.

Enforcement presents another challenge given modern hybrid work arrangements: “In an era of hybrid and remote work, determining whether an employee ‘works in Chicago 50 percent or more of the time’ invites audit disputes.”

Critics conclude that reviving this approach may yield little financial benefit while deterring investment: “If the goal is to restore fiscal stability and civic confidence, the city should pursue policies that reward investment, not punish it.”

The debate over how best to address Chicago’s budget shortfalls continues amid concerns about competitiveness within both regional and national contexts.