Lightfoot would be wise to steer clear of these tax ideas

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Revenue-raising ideas trotted out by a coalition of progressive groups and a handful of like-minded aldermen during a Sept. 10 news conference landed with a thud. Among the items on their to-do list:

• A corporate head tax of $16 per month for large companies.
• A 3.5 percent tax on office leases.
• A hike in the hotel tax from 4.5 percent to 7.5 percent.
• A tax on commercial properties vacant for more than 18 months.
• A local income tax on people earning more than $100,000 a year.
• A financial transaction tax on all high-speed trades.

The appropriately cool reception those proposals received from Mayor Lori Lightfoot might have convinced some onlookers that the progressives’ notions were about as likely to become law as the new mayor calling for renaming Lake Shore Drive after Ted Cruz.

But we shouldn’t forget that to achieve much of her agenda, Lightfoot must win over or at least tolerate elements of a decidedly more left-leaning City Council, particularly some of the Democratic Socialists who are, at best, skeptical of the new mayor and her motives. The specter of a school strike may only harden resistance in progressive quarters, which could tempt even the most iron-willed chief executive to throw the opposition a bone and wave through perhaps one or two of the 13 revenue proposals the coalition has put on the table. The trouble is, many of these proposals are profoundly bad.

It took the business community decades to squelch the head tax in effect in Chicago from 1973 until 2014, when Rahm Emanuel finally phased it out. Head taxes make it costlier to employ new and low-skill employees—leading, in some cases, to less hiring and more automation—and hurting the very sorts of workers the progressives are fighting to protect. The so-called LaSalle Street tax is also a job-killer, as the exchanges have made it abundantly clear they will pick up and move to any other spot on the globe—as they increasingly can in this now-digital business—where transactions aren’t thus taxed.

Similarly, to propose a hike in the hotel tax is to ignore the headwinds buffeting downtown hotels right now. After a bitter-cold start to the year and a convention calendar that brought a fraction of the business that filled room-nights last year, revenue per available room at downtown hotels through July was $140.82, down 6.5 percent from the same period in 2018. It’s the lowest the key performance metric has been for that period since 2014.

And the idea that taxing the landlords of vacant buildings will somehow incentivize investment is pretty iffy. Vacancy tax experiments being tried in other cities have delivered spotty results, mainly because greedy landlords driving up rents aren’t the only reason vacancies happen. The implosion of brick-and-mortar retail plays a role, as does crime, declining home values and other factors often beyond landlords’ control.

Some in City Hall seem to see the central business district as a bottomless pot of gold to mine for tax revenue. As 47th Ward Ald. Matt Martin put it during the progressives’ news conference, “We’ve seen over the last decade-plus about 60 corporations relocate to the city of Chicago. We’ve seen dozens of cranes operating, and we’ve seen Uber just announce its going to spend $200 million on freight expansion.”

True enough. But, as Crain’s political columnist Greg Hinz points out in this week’s issue, there are signs that the conga line of capitalists looking to pour money into downtown real estate is thinning. Office building capital flows here dropped 87 percent in the first six months of the year compared to last year, according to one study. Similar research projects that in terms of all commercial transactions, Chicago still will rank fifth nationally for investment in the last half of the year, but finds the dollar total is slipping, down 57 percent in the first half, even as another report finds a 13.7 percent gain in investment for North America as a whole last year.

What’s chilling that investment? There are too many factors to narrow it down to just one, but wariness over Chicago’s frail financial health and the new regime’s prescriptions for healing it are certainly part of the mix. One thing the data underscores—and City Hall would be wise to heed: Capital is not captive to Chicago. If investors sense there are better opportunities elsewhere—in, say, Nashville or Houston—that’s where their money, and the jobs they finance, will flow.