Chicago Mayor’s Employee Tax: Young Workers Feel the Impact

Chicago Mayor’s New Tax Hikes Make Entry-Level Jobs Even Harder to Find

The job market in Chicago is already one of the toughest for entry-level positions. Now, Mayor Brandon Johnson is proposing new tax hikes that will make it even more challenging for Gen Z workers to establish careers in the city.

New Business Taxes Target Large Firms and Small Businesses

As part of his third budget proposal last week, Johnson unveiled a plan to address a $1.15 billion budget shortfall by implementing new taxes and fees. The primary target this time is the business community. This strategy has been used in the past to fill revenue gaps, but its effectiveness has been questioned, as history shows it can have detrimental consequences for growth and job creation.

Head Tax Returns to Burden Businesses

Johnson’s proposal includes reviving a long-defunct “head tax” on businesses with over 100 employees. Companies such as McDonald’s, United Airlines, and other large firms will be charged a monthly fee of $21 per employee. This tax could generate an estimated $100 million annually for the city.

Chicago Loses Ground to Other Cities

Meanwhile, second-tier cities such as Raleigh, Baltimore, and Milwaukee are attracting businesses and young workers with affordable living costs and competitive job opportunities. These cities have positioned themselves as technology hubs and provide a more attractive environment for growth compared to Chicago.

Tax Hike Punishes Growth and Increases Hiring Costs

This move by Johnson risks exacerbating the problem of out-migration from Chicago, particularly among large corporations that are already considering relocating. Boeing, Caterpillar, TTX, Citadel, and Tyson have already left the city, and this tax hike will only make it more expensive for employers to hire new employees.

Criticism from State Officials

Even Governor JB Pritzker has expressed opposition to the proposed head tax, highlighting concerns about its potential negative impact on businesses and job growth in the state. This suggests that Johnson’s strategy is not universally supported by those with knowledge of the city’s economic landscape.

History Shows Head Tax as a “Job Killer”

The original head tax implemented in Chicago charged companies with 50 or more employees $4 per worker and generated around $35 million annually. Mayor Rahm Emanuel ultimately phased it out, describing it as a “job killer.” The city now expects to generate $100 million from the revived head tax on businesses with over 100 employees.

Impact on Businesses and Young Workers

The new head tax will add another significant financial burden on Chicago’s business community, which already faces the third-highest state corporate income tax and the highest commercial property tax in the country. This could further contribute to the city’s record-high office vacancy rate of 28%, as employers continue to seek more competitive locations.

Chicago Losing Businesses at Alarming Rate

Between 2015 and 2024, Chicago lost nearly one in five businesses – a total of 11,200. The pandemic has only accelerated this trend, and the city could lose hundreds more businesses this year. This situation is particularly alarming for young entrepreneurs who might be discouraged from starting their ventures in a city that penalizes growth.

Entry-Level Job Opportunities Decline

The proposed head tax will likely lead to fewer job openings, lower salaries, and slower hiring at entry-level positions. This can make it more challenging for young Chicagoans to begin their careers and compete with graduates from other cities that offer a more supportive environment.

Impact on Unemployment Rate

With an unemployment rate of 4.6%, which is higher than the national average for large metro areas, everyday Chicagoans are already struggling to find work. The proposed tax hikes will further discourage businesses from remaining in or expanding within the city, potentially worsening the situation.

Overspending and Lack of Structural Reform

Mayor Johnson insists that the city faces a “revenue challenge,” but the problem stems from overspending and an ever-growing budget that has outpaced the city’s economy and population. The budget has ballooned by $7 billion since 2019 – a 62% increase, which is more than double the growth rate of comparable cities such as New York, Los Angeles, or Houston.

Temporary Aid Masked Overspending Issues

Federal relief funds masked overspending for years, but now that these funds have dried up, Johnson’s budget fails to address the increase in staffing and programming that was supported by temporary aid. This has resulted in City Hall resorting to various measures to generate revenue through new taxes and fees.

Social Media Tax and Other Revenue Measures

Johnson’s 2026 budget includes a first-in-the-nation social media tax on tech companies, as well as increased taxes on rideshares, cloud computing services, and sports betting. These measures will further burden businesses and individuals in the city, potentially leading to decreased investment and job creation.

Taxing Labor Instead of Addressing Government Spending

Johnson proposes financing recent government spending by imposing a tax on private labor. However, government institutions – which are Illinois’s fastest-growing employer type – and nonprofits such as the Chicago Teachers Union will be exempt from this tax, despite also being large employers. This decision seems to favor certain segments of the city over others.

Need for Structural Reform in Chicago

Chicago desperately needs structural reforms to address its growing budget issues and unsustainable spending patterns. Nearly 40% of the city’s local spending goes towards pensions and debt, which has become a major burden on taxpayers. Constitutional pension reform is necessary to resolve this issue.

Right-Sizing Government and Spending Cap

Reducing the commercial property tax burden could also attract large businesses that are currently opting for states with lower taxes. Furthermore, right-sizing government spending to at least 2019 levels and implementing a spending cap tied to a 10-year inflation rate would help control costs and ensure fiscal responsibility.

Focus on Attracting Businesses and Residents

The best way to address the city’s revenue needs is not through taxing businesses but by attracting young residents, entrepreneurs, and established companies. Chicago should focus on creating a more favorable environment for growth and job creation rather than penalizing its businesses with burdensome tax hikes.

Conclusion

By reviving a failed head tax and implementing new taxes that target large corporations and tech companies, Mayor Johnson’s budget proposal will likely exacerbate Chicago’s economic problems. Instead of fixing government overspending and attracting businesses, this approach risks driving away existing employers and discouraging new investments. It is time for the city to stop taxing work and start focusing on reforms that will create a more prosperous future for its residents.