Chicago faces a significant, and growing public pension problem. According to the Chicago Sun Times, Chicago’s four pension plans (including for teachers and public safety workers) face a combined debt of around $20 billion, a number that, without reform, is likely to continue to grow. In order to fill this gap in pension funding, Chicago Mayor Rahm Emanuel has proposed several new or expanded taxes to cover the growing debt.
After a proposed property tax hike was rejected by the Chicago City Council, Mayor Emanuel turned to another source of revenue, telephone bills. Emanuel’s proposed plan would increase the current taxes both wireless and land lines by 56 percent. The hike from $2.50 a month to $3.90 a month would be the maximum allowed by state law. 36 of Chicago’s 50 aldermen co-sponsored the tax hike. The Illinois Policy Institute criticized the tax hike and noted that the increase would place Chicago’s wireless tax rates higher than all of its regional neighbors.
“Illinois’ cell phone tax rate already is higher than all of the state’s neighbors. Residents in nearby states pay an average of 6 percent less in taxes on their phone bills.
On top of paying an effective federal tax rate of 5.82 percent and a 7 percent state of Illinois telecom excise tax, Chicago wireless consumers already pay a 7 percent municipal tax to the city and a $2.50 per line wireless 911 fee.”
John Nothdurft, Director of Government Relations at the Heartland Institute argues that the new tax hike is only the most recent in a series of tax hikes that has made Chicago one of the most overtaxed municipalities in the country.
“The City of Chicago is about to have another Number 1 ranking when it comes to high taxes. Mayor Emanuel’s proposed $50 million increase in the city’s phone tax would give Chicago the highest tax of its kind in the nation. The city already boasts the nation’s highest cigarette tax, which the city raised just last year, and is knocking on the doorstep of having the highest sales tax, property tax, and meal tax, to name a few,” commented Nothdurft. “Sure the city might not raise property taxes this year, but unless the cities spending and unfunded liabilities are addressed in a significant manner then it won’t be long before Mayor Emanuel comes back for more.”
Sam Karnick, Director of Research at the Heartland Institute agrees, and cautions Chicago taxpayers that these new taxes do not preclude significant tax hikes down the road.
“Mayor Emanuel is desperately looking for a solution to pension problems he didn’t create, but certainly would have, based on his record and party affiliation,” argues Karnick. “Given that any property tax hike is off the table for only one year, his and Gov. Quinn’s obvious goal is to get through the next state and local elections without raising property taxes or suffering further credit downgrades. If the mayor and governor have their way, Chicagoans will ultimately get two tax hikes out of this, and one-party rule will continue. It’s the very opposite of fiscal responsibility.”
Wireless taxes have quickly become the latest slush fund irresponsible governments are seeking to use to fund their out-of-control spending. In many states, wireless tax rates have already reached all-time highs. Almost half the states nationwide now impose a wireless tax above 10 percent (the national average is more than 16.3 percent). Even as revenue earned per wireless phone falls, taxes and fees climb. Many of these taxes, like Mayor Emmanuel’s, are being used to fund programs and services that are in no way related to telecommunications.
Critics of the tax hike have argued that the city phone tax was designated for the 911 call center and should not be used for other purposes. Raiding 9-1-1 funds, vehicle taxes, or any dedicated revenues for reasons other than their intended purpose is bad public policy. Public safety groups have criticized states for using 9-1-1 funds for other purposes. The National Emergency Number Association, National Association of State 911 Administrators, and 9-1-1 Industry Alliance called these sweeps “less than honest” and stated the diversion of funds places the nation’s 9-1-1 systems at risk while breaking “the trust established with the public.”
In addition to the public safety problems these fund raids create, taxpayers also should be concerned about how their tax dollars are being managed. When states are allowed to raid dedicated funds and divert those taxes from their stated purpose, these dedicated revenues become de facto slush funds and additional phone taxes will likely be tacked onto phone users’ bills. If a dedicated 9-1-1 fund builds up “extra” revenue, lawmakers should reduce the tax to a more reasonable level and not raid the fund for other expenditures.
Steve Stanek, the Managing Editor of Budget & Tax News contends that the 911 fund as it currently exists has not been used properly.
“The phone tax was supposed to fund a 911 call center that should have been paid for years ago, but isn’t because of huge cost overruns,” argued Stanek. “The tax was never to be used for government pensions. What’s next? Phone taxes to pay patch potholes and plow snow?”
High wireless taxes are a drag on both consumers and the wireless market, deterring innovation and infrastructure improvements, while disproportionately affecting minority and low-income populations. Before these taxes spin out of control, making wireless services less accessible for everyone, measures to stop it need to happen. One possibility is the implementation of a moratorium on these discriminatory tax hikes like the Wireless Tax Fairness Act, which would benefit both the economy and consumers.