Chicago considers commuter tax

[eldondre]

Commuters: Chicago tax is off the rail - Herald News

[AbortedWalrus]

1% tax is nothing compared to the tax here in Philly on commuting workers.

That said, I don't really mind commuter taxes that much. They encourage growth in the city and promote density, and discourage more suburban sprawl. They should up the commuter tax to Philadelphia and lower the business taxes. The decreased cost of running a business would offset the urge to relocate outside of the city, so it would avoid the problem of businesses moving outside of the city. The tax money could be used to improve the rapid transit systems and city infrastructure. Combine that with high gas prices and it's almost a win/win for cities.

[scotchrocks]

FTA: “Since I work in the city, I am already buying food and drinks, retail items, and eating out at restaurants, and paying the higher city and county taxes that are imposed on most of these items. By working in the city, I am already generating revenue for the city, and now they want to penalize me for it.”

1.) Brown-bag it.
2.) Don't shop while at work. Read a book instead.
3.) The only reason the suburbs exist is because of the city. If anyone is suffering a penalty, it's the city-dwellers who have to pay more to support the droves of suburbanites who invade daily. The infrastructure you use to get to t e city and to work there isn't offset by your simply existing.

[eldondre]

1% tax is nothing compared to the tax here in Philly on commuting workers.

That said, I don't really mind commuter taxes that much. They encourage growth in the city and promote density, and discourage more suburban sprawl. They should up the commuter tax to Philadelphia and lower the business taxes. The decreased cost of running a business would offset the urge to relocate outside of the city, so it would avoid the problem of businesses moving outside of the city. The tax money could be used to improve the rapid transit systems and city infrastructure. Combine that with high gas prices and it's almost a win/win for cities.

really? Philly is a pioneer in the commuter tax and our job density is pretty low with people commuting every which way. chicago also has a much larger portion of the region's job base. commuter taxes have had the exact opposite effect, encouraging sprawl. indeed, the only other major city with a commuter tax is detroit.
i fail to see how brown bagging it is good for anyone, why not just work in the burbs then? a great part of working in the city is the social aspect, trying new places for lunch, picking things up after work, etc. I'd also point out that if people brown bagged it and didn't shop, then what would be the purpose of working downtown and would the city really gain since city businesses would lose a lot of money? I'd also question the invasion theory. how many restaurants and companies would exist downtown without suburbanites, likely a fraction of the current number. certainly infrastructure is needed for people to get to work but here in PA, much of that infrastructure isn't paid for by the city. septa is mostly paid for by the state, then the feds, then the counties. 76 isn't a city road, neither is 95.

[Hospitalitygirl]

1% tax is nothing compared to the tax here in Philly on commuting workers.

That said, I don't really mind commuter taxes that much. They encourage growth in the city and promote density, and discourage more suburban sprawl. They should up the commuter tax to Philadelphia and lower the business taxes. The decreased cost of running a business would offset the urge to relocate outside of the city, so it would avoid the problem of businesses moving outside of the city. The tax money could be used to improve the rapid transit systems and city infrastructure. Combine that with high gas prices and it's almost a win/win for cities.

Oh god no! You really couldn't be more wrong on this.

[AbortedWalrus]

really? Philly is a pioneer in the commuter tax and our job density is pretty low with people commuting every which way. chicago also has a much larger portion of the region's job base. commuter taxes have had the exact opposite effect, encouraging sprawl. indeed, the only other major city with a commuter tax is detroit.
i fail to see how brown bagging it is good for anyone, why not just work in the burbs then? a great part of working in the city is the social aspect, trying new places for lunch, picking things up after work, etc. I'd also point out that if people brown bagged it and didn't shop, then what would be the purpose of working downtown and would the city really gain since city businesses would lose a lot of money? I'd also question the invasion theory. how many restaurants and companies would exist downtown without suburbanites, likely a fraction of the current number. certainly infrastructure is needed for people to get to work but here in PA, much of that infrastructure isn't paid for by the city. septa is mostly paid for by the state, then the feds, then the counties. 76 isn't a city road, neither is 95.

Except I don't think the problem of low job density is a problem because of the commuter tax. I think it's a result of the high business taxes. If business taxes were lower, more jobs would be based in the city, and the city's taxable base would grow. If they structured it properly they could offset decrease in business tax revenue in the short term with an increase in commuter tax for the short term. Philadelphia doesn't do any of this. They have high business taxes, high commuter taxes, and high taxes for residents. So no, it doesn't work here, but in theory a commuter tax should increase density, not decrease it, from all logic I can see. It also probably wouldn't work without a decrease in the local tax either, to encourage new residents to relocate inside the city. The whole thing is about increasing the taxable base, to offset the short term losses in revenue. But that's way too forward thinking to work in Philadelphia.

Edit: Expanding on my reasoning a bit further...

Chicago has no business income tax. It has a gross receipts tax that is around double what ours is. It has no wage tax. Wage taxes + business taxes are what caused low job density in Philadelphia, not the cities commuter tax. If there was no tax increase to live in the city, but a tax increase to live outside the city, it would just plain make sense that more people would move into the city, especially if more businesses were based there due to lower business taxes.

[Hospitalitygirl]

Except I don't think the problem of low job density is a problem because of the commuter tax. I think it's a result of the high business taxes. If business taxes were lower, more jobs would be based in the city, and the city's taxable base would grow. If they structured it properly they could offset decrease in business tax revenue in the short term with an increase in commuter tax for the short term. Philadelphia doesn't do any of this. They have high business taxes, high commuter taxes, and high taxes for residents. So no, it doesn't work here, but in theory a commuter tax should increase density, not decrease it, from all logic I can see. It also probably wouldn't work without a decrease in the local tax either, to encourage new residents to relocate inside the city. The whole thing is about increasing the taxable base, to offset the short term losses in revenue. But that's way too forward thinking to work in Philadelphia.

NO. Regardless, we have enough problems competing and we aren't a "center" like Chicago, nor are we New York. In fact based in between NYC and DC and having no natural boundaries to our suburbs, the only reasons TO base in the city proper would be a lack of BPT AND lack of commuter tax.

Look, if it wouldn't fly in NYC with all of their assets, the dumbest thing ever would be to have one in Philadelphia. Hell, I don't think even Chicago can afford this hit.

[AbortedWalrus]

I take it you must find the already existing commuter tax of 3.4% that Philadelphia has extremely excessive as well? I mean, I certainly do. But I never really pinned it as the reason no businesses wanted to be located in the city. Are you suggesting that if the existing commuter tax was removed it would spur business growth inside the city? I just don't really see a reason as to why that would be the case.

[Hospitalitygirl]

I take it you must find the already existing commuter tax of 3.4% that Philadelphia has extremely excessive as well? I mean, I certainly do. But I never really pinned it as the reason no businesses wanted to be located in the city. Are you suggesting that if the existing commuter tax was removed it would spur business growth inside the city? I just don't really see a reason as to why that would be the case.

The BPT is the prime reason for lagging growth in the city. There are other issues as well, such as wage taxes. But make no mistake about it--the BPT is a very unfriendly tax to any business.

And when have you seen city administrations in the last few TAKE *any* tax away, regardless of sunset provisions?? Nothing will go away--this would just be another added to the offensive pile.

[billy ross]

1% tax is nothing compared to the tax here in Philly on commuting workers.

That said, I don't really mind commuter taxes that much. They encourage growth in the city and promote density, and discourage more suburban sprawl. They should up the commuter tax to Philadelphia and lower the business taxes. The decreased cost of running a business would offset the urge to relocate outside of the city, so it would avoid the problem of businesses moving outside of the city. The tax money could be used to improve the rapid transit systems and city infrastructure. Combine that with high gas prices and it's almost a win/win for cities.

Does Chicago presently have an income tax for residents? The state income tax in IL is 5%, which itself just went up dramatically. In PA it is 3.07%. IF this increase were to go through then commuters to Chicago would pay 6% in state and local taxes, not including any possible local income tax in their domicile. In Philly that combined state and local income tax for commuters is 6.5685%. It has gone down dramatically over the past 15 years or so. Philly suburbanites don't pay any local income taxes in their domicile because Philly's tax is paramount since it was the first to levy an income tax after the federal government, so the feds get their money first, Philly second, and so on.

[billy ross]

Except I don't think the problem of low job density is a problem because of the commuter tax. I think it's a result of the high business taxes. If business taxes were lower, more jobs would be based in the city, and the city's taxable base would grow. If they structured it properly they could offset decrease in business tax revenue in the short term with an increase in commuter tax for the short term. Philadelphia doesn't do any of this. They have high business taxes, high commuter taxes, and high taxes for residents. So no, it doesn't work here, but in theory a commuter tax should increase density, not decrease it, from all logic I can see. It also probably wouldn't work without a decrease in the local tax either, to encourage new residents to relocate inside the city. The whole thing is about increasing the taxable base, to offset the short term losses in revenue. But that's way too forward thinking to work in Philadelphia.

Edit: Expanding on my reasoning a bit further...

Chicago has no business income tax. It has a gross receipts tax that is around double what ours is. It has no wage tax. Wage taxes + business taxes are what caused low job density in Philadelphia, not the cities commuter tax. If there was no tax increase to live in the city, but a tax increase to live outside the city, it would just plain make sense that more people would move into the city, especially if more businesses were based there due to lower business taxes.

Philly views its tax base as a given, and new revenue as found money. That's not entirely correct, but it's a close enough approximation. The plan in Philly for a long time has been to use the found money of new revenue to be able to afford to lower the existing (and exhorbitant) taxes on wages and businesses - the wage taxes and the BPT have both gone down dramatically since the 90's. That's exactly what the real estate tax abatement is about; it has fostered new tax revenue streams, mostly wage, which have allowed the overall pot to grow by enough to take pressure off of the established payers. Now Bill Green is talking about having a new program which would tax new businesses lower than existing businesses, sort of a tax abatement for businesses. He figures that this would hopefully allow enough growth to be able to afford quicker cuts in the BPT for the existing businesses, and he loves it because it only gives up new revenue at first, and not existing revenue which much be offset by cuts. I think it's an interesting idea which is worth pursuing.

[BarryG]

Philly views its tax base as a given, and new revenue as found money. That's not entirely correct, but it's a close enough approximation. The plan in Philly for a long time has been to use the found money of new revenue to be able to afford to lower the existing (and exhorbitant) taxes on wages and businesses - the wage taxes and the BPT have both gone down dramatically since the 90's. That's exactly what the real estate tax abatement is about; it has fostered new tax revenue streams, mostly wage, which have allowed the overall pot to grow by enough to take pressure off of the established payers. Now Bill Green is talking about having a new program which would tax new businesses lower than existing businesses, sort of a tax abatement for businesses. He figures that this would hopefully allow enough growth to be able to afford quicker cuts in the BPT for the existing businesses, and he loves it because it only gives up new revenue at first, and not existing revenue which much be offset by cuts. I think it's an interesting idea which is worth pursuing.

The "business abatement" idea is interesting. It may be a hard sell to established businesses but it's a hell of a lot better than one-time subsidies and other gimmicks we use to lure businesses here.

[billy ross]

The "business abatement" idea is interesting. It may be a hard sell to established businesses but it's a hell of a lot better than one-time subsidies and other gimmicks we use to lure businesses here.

I think they're asking themselves what they've learned from the rapid development at the Navy Yard and how it can be applied throughout the city. That's why they're looking to back off on hammering new businesses.

[raider.adam]

Except I don't think the problem of low job density is a problem because of the commuter tax. I think it's a result of the high business taxes. If business taxes were lower, more jobs would be based in the city, and the city's taxable base would grow. If they structured it properly they could offset decrease in business tax revenue in the short term with an increase in commuter tax for the short term. Philadelphia doesn't do any of this. They have high business taxes, high commuter taxes, and high taxes for residents. So no, it doesn't work here, but in theory a commuter tax should increase density, not decrease it, from all logic I can see. It also probably wouldn't work without a decrease in the local tax either, to encourage new residents to relocate inside the city. The whole thing is about increasing the taxable base, to offset the short term losses in revenue. But that's way too forward thinking to work in Philadelphia.

Edit: Expanding on my reasoning a bit further...

Chicago has no business income tax. It has a gross receipts tax that is around double what ours is. It has no wage tax. Wage taxes + business taxes are what caused low job density in Philadelphia, not the cities commuter tax. If there was no tax increase to live in the city, but a tax increase to live outside the city, it would just plain make sense that more people would move into the city, especially if more businesses were based there due to lower business taxes.

You are correct that the commuter tax, in of itself, is not the problem. It IS another variable though.

[eldondre]

Except I don't think the problem of low job density is a problem because of the commuter tax. I think it's a result of the high business taxes. If business taxes were lower, more jobs would be based in the city, and the city's taxable base would grow. If they structured it properly they could offset decrease in business tax revenue in the short term with an increase in commuter tax for the short term. Philadelphia doesn't do any of this. They have high business taxes, high commuter taxes, and high taxes for residents. So no, it doesn't work here, but in theory a commuter tax should increase density, not decrease it, from all logic I can see. It also probably wouldn't work without a decrease in the local tax either, to encourage new residents to relocate inside the city. The whole thing is about increasing the taxable base, to offset the short term losses in revenue. But that's way too forward thinking to work in Philadelphia.

I'm not so sure about this. I think the commuter tax may well be a larger reason than the BPT. When I lived in the burbs it was extremely rare for anyone to actually seek employment in the city. why? the tax. without a doubt it lowers your available labor pool, and the suburban labor pool has a lot of the educated workforce. in fact, there are more successful cities with business taxes than commuter taxes. I really don't see the logic you are getting at...indeed, it's quite backwards a commuter tax should, in theory, decrease density since it encourages employment outside its borders. it's not like a state or federal tax that's hard to avoid. that said, I agree with the increases in the taxable base and there are any number of things that can be done. I would point out that the incremental tax decreases have offset the decline in the rate. OTOH, the city's financial problems (pensions, etc) have forced increases in other taxes. katz's idea of borrowing money to make up the shortfall back in 2000 was probably a good one since incremental tax changes could take more than a generation to play out.

Chicago has no business income tax. It has a gross receipts tax that is around double what ours is. It has no wage tax. Wage taxes + business taxes are what caused low job density in Philadelphia, not the cities commuter tax. If there was no tax increase to live in the city, but a tax increase to live outside the city, it would just plain make sense that more people would move into the city, especially if more businesses were based there due to lower business taxes.

right, but that's not how it is...and people would pay more to live outside the city so long as the schools are bad inside the city. there is no other city in the nation that has wage/commuter, gross receipts, and corp net income. Philadelphia is the only one. that said, nobody else relies so heavily on the commuter tax either. I don't really think that your idea of trying to force everyone into the city will ever work. as it is, people have responded to an improved city by moving there. there's no reason to think that the same couldn't be said for businesses.

[eldondre]

The "business abatement" idea is interesting. It may be a hard sell to established businesses but it's a hell of a lot better than one-time subsidies and other gimmicks we use to lure businesses here.

seems pretty unfair unless it's coupled with gradual cuts to the established tax. assuming the RE revaluation goes through, perhaps we can eliminate the abatement which would no longer be necessary and shift the money to bpt/wage cuts.

[billy ross]

seems pretty unfair unless it's coupled with gradual cuts to the established tax. assuming the RE revaluation goes through, perhaps we can eliminate the abatement which would no longer be necessary and shift the money to bpt/wage cuts.

Fixing the BRT issue will lessen the need for the abatement, but I question whether it will eliminate the need for it entirely. This is for two reasons. One is that most likely the appraisers will err on the side of caution. That is, if there is a range where a house could be worth between 800k and 900k, I expect the new numbers to come in at 800k, just to cut back on appeals and having their valuations overturned. This won't be an option for new construction, which should be valued based upon the sale price. The other reason that new construction should still be abated is that in order to compete with suburban new construction, the tax wedge of residing in Philly needs to be made up for, and the abatement does this very nicely.

I don't know why you've got such a hard-on to get rid of the abatement. It's been around since the 90's, and every year properties come off of abatement. It's only a ten year lag, not a permanent reduction, and all the while we're getting the wage tax, which is the real money anyway. On top of that it isn't even really ten years, since four years are paid upfront to the city in transfer taxes; it's really only years five through ten that are 'forgiven', with years one through four paid at closing. As a matter of fact, since the city gets all of its share of the transfer taxes and only half of the property taxes, it's more like 8 years as far as the city is concerned, which is almost a wash, although of course most people don't see that. How long were these properties sitting derelict before they got developed? How many would still be sitting derelict today in the absence of the abatement? Haven't you noticed the breadth of the building boom in Philly in the middle of the biggest real estate bust in my lifetime? I would expect that by now this cohort of properties coming off abatement is enough to move the needle. This is found money, in addition to the wage tax garnered. The suburbs are built out. We're poised for a building boom in Philly the likes of which we haven't seen since the Northeast got built out, once demand recovers. We have the land, the infrastructure, and the (hopefully) permissive zoning (by that time). The suburbs have none of the three. It will do wonders for this city when it happens. Our population and tax base will both go up smartly. Our public schools will get much better clay. Our crime rate will drop. Don't stampede to kill the golden goose.

I don't own a single abated property, and I never have, nor do I even aspire to do so. To me it's a long walk on a short pier - my time horizon is longer than 10 years. Still, it has bridged the gap between the demand and supply curves to cause construction and development to rocket ahead. The abatement brought Philly from a moribund private-market new home industry to a thriving, vibrant one, despite tremendous prevailing headwinds of a collapsed lending sector and demand nationally. This development in Philly has been extremely good for my non-abated properties, and for my quality of life, and I want to see more of the same. I went to the Resurrection Ale House for lunch yesterday and I was struck at how instead of building rows anymore now new rowhouses are built one house at a time, all different from each other, creating a very interesting streetscape as the infill completes (Toll Brothers Developments excepted, of course).

[AbortedWalrus]

right, but that's not how it is...and people would pay more to live outside the city so long as the schools are bad inside the city. there is no other city in the nation that has wage/commuter, gross receipts, and corp net income. Philadelphia is the only one. that said, nobody else relies so heavily on the commuter tax either. I don't really think that your idea of trying to force everyone into the city will ever work. as it is, people have responded to an improved city by moving there. there's no reason to think that the same couldn't be said for businesses.

I think drawing businesses is the first way to improve the city. But it's like I said, a commuter tax isn't bad IF the other taxes are low, which was my whole point. If the business taxes were low enough to draw businesses in. I think that if you have revenue problems currently with a high business tax rate, but a high commuter rate, a good way to lower the business taxes in the short term is to institute a commuter tax. After all, commuters receive a benefit from city services and infrastructure as well.

Make no mistake though. I realize completely this wouldn't work for Philadelphia in its CURRENT state. There is too much wrong with the tax structure as it is, and that's more a problem of complete ineptness of management. But if we were to lower the business tax and slightly bump up the commuter tax to offset it, I don't think it would hurt things if you had the right starting conditions. I honestly think it would bring in jobs. I'm just as sure as hell going to fight any tax increase tooth and nail until they do something about the complete debacle that currently exists. I actually think it would work out pretty well for Chicago if they were looking to draw people in like Philadelphia needs to. They have a high GRT and if they can cut that by 25% by putting a 1% commuter tax on people who come into the city and use city services/infrastructure anyway, it's not a bad idea.

[eldondre]

Fixing the BRT issue will lessen the need for the abatement.... This won't be an option for new construction, which should be valued based upon the sale price. The other reason that new construction should still be abated is that in order to compete with suburban new construction, the tax wedge of residing in Philly needs to be made up for, and the abatement does this very nicely.
I don't know why you've got such a hard-on to get rid of the abatement. It's been around since the 90's, and every year properties come off of abatement. It's only a ten year lag, not a permanent reduction, and all the while we're getting the wage tax, which is the real money anyway. On top of that it isn't even really ten years, since four years are paid upfront to the city in transfer taxes; it's really only years five through ten that are 'forgiven', with years one through four paid at closing. As a matter of fact, since the city gets all of its share of the transfer taxes and only half of the property taxes, it's more like 8 years as far as the city is concerned, which is almost a wash, although of course most people don't see that. How long were these properties sitting derelict before they got developed? How many would still be sitting derelict today in the absence of the abatement? Haven't you noticed the breadth of the building boom in Philly in the middle of the biggest real estate bust in my lifetime? I would expect that by now this cohort of properties coming off abatement is enough to move the needle. This is found money, in addition to the wage tax garnered. The suburbs are built out. We're poised for a building boom in Philly the likes of which we haven't seen since the Northeast got built out, once demand recovers. We have the land, the infrastructure, and the (hopefully) permissive zoning (by that time). The suburbs have none of the three. It will do wonders for this city when it happens. Our population and tax base will both go up smartly. Our public schools will get much better clay. Our crime rate will drop. Don't stampede to kill the golden goose.

as I understand it, very little of the abated value goes to the buyer anyway with much of it captured by the seller. at any rate, it isn't a golden goose and will have outlived it's main purpose. with a new valuation scheme, new property won't need to be exempted from the high millage rates...from a personal perspective I wouldn't mind seeing an abatement restricted to vacant land and property but certainly the cost of the abatement in the short term should be weighed against what the same revenue could accomplish by reducing other taxes.

. The abatement brought Philly from a moribund private-market new home industry to a thriving, vibrant one, despite tremendous prevailing headwinds of a collapsed lending sector and demand nationally. This development in Philly has been extremely good for my non-abated properties, and for my quality of life, and I want to see more of the same. I went to the Resurrection Ale House for lunch yesterday and I was struck at how instead of building rows anymore now new rowhouses are built one house at a time, all different from each other, creating a very interesting streetscape as the infill completes (Toll Brothers Developments excepted, of course).

that's all very nice but it does not mean there is a continued need for the abatement. it has served its purpose but things are different today.

[eldondre]

I think drawing businesses is the first way to improve the city. But it's like I said, a commuter tax isn't bad IF the other taxes are low, which was my whole point. If the business taxes were low enough to draw businesses in. I think that if you have revenue problems currently with a high business tax rate, but a high commuter rate, a good way to lower the business taxes in the short term is to institute a commuter tax. After all, commuters receive a benefit from city services and infrastructure as well.

not sure about that, it reduces the labor pool and taxes management even if they don't live in the city. eliminating the commuter tax was one of the things nyc did to revive itself. I suppose if all the taxes were lower, it wouldn't be such a big deal. that said, I think you're a bit off on the commuter benefit from city services and infrastructure. SEPTA and most of the highways are paid for others. most of the city budget pays for prisons, pensions, and municipal employment...very little of which has nearly the impact on commuters that their share of taxes represent. I think if chicago instituted a large commuter tax, the end result would be job loss rather more than anything else. if, as you say, commuters were using city services in excess of what they paid...that would be a good thing.
as for chicago, they don't have a business generation problem though...they mostly have a spending problem and shrinking population. they make up nearly a third of the regional workforce I believe, nearly three times as high as philadelphia (AFAIK)