Daley’s budget calls for scaling back the head tax

Posted Oct. 13, 2010 at 6:14 p.m.

Chicago employers would see modest tax relief under Mayor Richard Daley’s proposed 2011 budget plan, which calls for scaling back of the payroll head tax.

Employers now are required to pay $4 a month for every employee who earns at least $900 per quarter. Under Daley’s proposal, the tax would apply only for employees earning at least $4,300 per quarter, the amount a full-time minimum-wage worker would earn.

“This will substantially reduce the head tax that employers have to pay and is an important step that will protect our businesses and help create jobs,” Daley said in his budget address Wednesday morning.

The move should be of particular help to small businesses with lower-wage employees, the mayor and his budget officers told the Chicago Tribune editorial board later in the day.

The change is expected to remove the tax on about 100,000 employees, and to trim $4.8 million from the city’s annual head tax revenues, which typically run about $20 million.

One observer said it sounds like the mayor wants to tout assistance to business without losing much revenue.

“What Chicago is famous for is its [high] sales tax . . . but cutting that rate is real money and could exacerbate the budget problems, which this proposal won’t,” said Bill Ahern, a spokesman for the Tax Foundation, a tax research group based in Washington, D.C.

A spokesman for the Illinois Manufacturers’ Association said the break would make little difference to its members, given that the average compensation for manufacturing workers nationwide is $70,000 a year, including benefits.

But Jerry Roper, president and chief executive officer of the Chicagoland Chamber of Commerce, sees the proposal as a significant form of assistance, particularly in this economic environment.

“At this time, every dollar is important, either for reinvestment in employees’ training or in equipment,” he said. “I think it’s a good tax and regulatory move to start attracting business versus policies that chase business away.”

Chicago’s existing head tax is modest relative to local payroll taxes elsewhere, Ahern noted. Many cities opt instead for having employers pay a percentage of each employee’s salary as local income tax.

A 1 percent tax on a $50,000 salary would cost an employer $500, while Chicago’s head tax would total $48.

“Some have proposed a city income tax, which I’m against,” Daley told the Tribune editorial board. “I have been against that my whole career.”

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