As Chicago faces a major deficit for fiscal year 2026, Mayor Brandon Johnson is considering resurrecting a failed idea that punishes job creation: the corporate head tax.
Chicago Mayor Brandon Johnson is staring down a projected $1.12 billion deficit in fiscal year 2026, so he’s proposing an already failed policy: the corporate head tax.
Instead, he should be cutting costs, capping budgets and pursuing pension reform.
On July 29, Johnson floated the idea of reinstating a head tax similar to the one Chicago eliminated a decade ago, a $4-per-employee tax on businesses with over 50 workers. The tax is expected to raise $25.6 million. But the cost to Chicago’s economy would far outweigh that gain.
A tax Chicago already tried and repealed when it failed
Chicago had a similar head tax from 1973-2014, which penalized companies for doing the very thing the economy needs: creating jobs. The tax made hiring more expensive for companies trying to grow.
Recognizing the damage, former Mayor Rahm Emanuel made it a centerpiece of his campaign in 2011 to eliminate the head tax entirely. By 2012, the tax was reduced to $2 per employee and completely repealed by 2014. At the time, Emanuel called it “a job killer that puts Chicago at a disadvantage.” That statement remains true today.
A bad idea at the worst time
Head taxes discourage employers from hiring because the tax goes up as worker numbers go up. By raising the cost of bringing in new workers, the tax would directly discourage job creation at the exact moment Chicago can least afford it. That’s bad news for a city that’s already struggling with a 5.3% unemployment rate, the slowest economic growth among large metros and an exodus of businesses.
Evidence from elsewhere: Seattle’s failure
Seattle tried to impose its own corporate head tax in 2018, which would have had large businesses paying $275 per full-time employee annually. The plan was met with strong opposition from companies such as Amazon, which threatened to suspend major expansion plans in the city. A permanent halt to construction would have cost the city $3.5 billion in economic impact and 7,000 jobs, analysis from the Seattle Metropolitan Chamber of Commerce said. The tax was repealed a month later.
Chicago businesses are already voicing their concerns, with Chicagoland Chamber of Commerce CEO Jack Lavin saying such taxes are “direct deterrents on companies locating here, staying here, creating jobs here.”
Chicago cannot afford to repeat this mistake, especially as at least 10 major headquarters have already left the city since 2020 including Caterpillar, Boeing and Tyson Foods.
Real solutions for Chicago’s budget woes
Rather than hiking taxes that drive out jobs and talent, the city should seek sensible, long-term solutions, such as:
- Cut costs first: Departments such as Family Support Services, Public Health and Innovation & Technology have each grown by over 80% since 2019. The city must conduct a comprehensive review of programs, staffing and rising contract costs to identify savings that can keep the city running as efficiently as possible.
- Enact budget caps: Tie the city’s spending growth with what taxpayers can actually afford. Capping annual spending increases to 10-year average consumer price index growth provides a stable, sustainable benchmark, while shielding budgets from temporary inflation spikes.
- Fix pension costs: Bringing down costs in a city with more pension debt than 43 states is the surest way to fix city finances and stop burdening taxpayers. Chicago has a massive influence on Illinois politics. The city should use that influence to urge the Illinois General Assembly to put a constitutional amendment on the ballot that would allow for pension reform.
A corporate head tax is a symbol of desperation, not a sound strategy. It offers little relief, while signaling to employers that hiring comes with a penalty.
If Chicago wants more jobs, growth and revenue, it must make itself a place where businesses want to expand, not where they’re punished for growing.
