High taxes, red tape and fiscal mismanagement have stalled Chicago’s economy, but smart reform could get it growing again.
Deep talent pools, top universities, key industry hubs and Midwest tourism dominance should make Chicago one of the strongest consumer cities in the world, but years of fiscal mismanagement and constant tax hikes have stifled its economic growth.
City leaders can change that.
Through fiscal discipline, tax reform and regulatory reform, Chicago could reignite growth. Here are five pro-growth measures the city can take to get back on track.
1. Restore fiscal stability and rebuild investor confidence
First, the city must stabilize its finances to attract private investment and expand the tax base. By taking measures, such as reforming its pension system and limiting future tax hikes, Chicago would reassure businesses they won’t be destroyed by sudden government demands for more of their earnings.
While tax increases may temporarily prop up the city’s budget, they slow economic growth in the long run, compounding over time and leaving Chicago trailing its peers. According to the National Bureau of Economic Research, just a 0.45% increase in property taxes on average decreases the number of firms by 2.7% over three years.
Chicago Mayor Brandon Johnson’s current proposals to hike taxes even further, such as reviving the corporate head tax, expanding the amusement and rideshare taxes, and more new levies elsewhere, would only worsen the city’s competitive position. Each new tax makes it costlier to invest and operate in Chicago, accelerating the outflow of jobs and talent to more business-friendly cities.
2. Simplify the tax code
Second, the city must simplify its tax code. Chicago’s tax system is notoriously complex, deterring small business formation and burdening entrepreneurs with overlapping city, state and federal rules. For example, the city levies a 9% lease transaction tax on cloud software and digital services, even though Illinois doesn’t tax them at the state level. It also applies its amusement tax to streaming services such as Netflix and Spotify, adding confusion over what counts as a taxable entertainment service.
These overlapping and inconsistent rules make compliance costly, especially for small firms trying to stay on the right side of the law. Entrepreneurs shouldn’t need a master’s degree in accounting to comply with city rules. When taxes are confusing and unpredictable, fewer people are willing to start or expand a business. Simplifying and consolidating business taxes would reduce compliance costs, boost investment and make it easier for new ventures.
3. Cut red tape and free up private development
Third, the city should encourage more private development by reducing red tape. Currently, two-thirds of Chicago land does not allow mixed-use development. This artificially restricts housing supply and makes living in the city harder and more expensive. Long permit wait times and aldermanic prerogative – a power letting aldermen control zoning in their wards – further inhibit supply, increasing housing prices.
The city should remove barriers to development, such as reducing zoning restrictions and increasing the speed of permitting. This would not only lower housing costs but also expand the property tax base and attract new residents and businesses. Encouraging private development would help Chicago grow, increasing tax revenue without raising rates.
4. Strengthen workforce training
Fourth, Chicago should optimize its job training programs to target what current firms need. Better coordination with local industries would help close skills gaps and connect residents to available, good-paying jobs. In the long run, aligning workforce development with employer demand would make Chicago more attractive to businesses, boost productivity and raise household incomes. A stronger labor force expands the city’s economic base, creating a cycle of higher employment, higher earnings and higher tax revenues without hiking taxes.
5. Improve public safety
Lastly, high crime rates undermine Chicago’s role as a consumer city, a place where people live, shop, dine and spend time because they feel safe doing so. When safety breaks down, so does local demand: businesses close earlier, residents avoid certain areas and investment dries up. Improving public safety would restore confidence, increase foot traffic, allow small businesses to thrive and help historically disinvested neighborhoods flourish.
Conclusion
Fiscal stability, predictable tax policy, regulatory reform, workforce development and public safety improvements can put Chicago back on a sustainable growth path.
These policies and more are discussed in the Illinois Policy Institute’s report, Chicago Forward.
