Transfer Tax Increase Proposed to Raise Money for Homeless
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The chances of a new ordinance being passed in the Chicago City Council just increased with calls from several Progressive Aldermen to pass the Bring Chicago Home plan that would substantially increase the transfer tax of real estate sales from $5.25 per $500 of sales value, to $15.25 per $500 of sales value on any sale of a commercial property valued at $1 million or greater. This additional transfer tax money would be used to pay for various measures to alleviate homelessness in the city.
Fighting homelessness is certainly a worthy goal. But the methods being proposed to achieve it are not. The ordinance, if passed, would represent just the latest incidence of a tax increase in a city that is sick to death of paying higher and higher fees for the privilege of living in Chicago. Maybe it would be different if Chicagoans felt they were getting commensurate services for their tax outlays. It is more likely that most Chicagoans feel that costs only ever go up while services stay the same or decline.
It will come as no surprise to anyone who lives here that taxes in Chicago are already among the highest in the nation with exorbitant property taxes and a sky-high sales tax. This transfer tax proposal comes at a time when inflation is at 40-year highs and fears of recession are growing. According to BOMA/Chicago:
“Chicago’s transfer tax is already excessive. The current transfer tax for Chicago totals $5.25 per every $500 and is by far the highest of all transfer taxes charged by any other municipality across Illinois. In fact, the average transfer tax among all other municipalities throughout Illinois is $2.06 per every $500 – over 60% lower than Chicago’s rate. This doesn’t consider those municipalities that charge a simple flat fee per real estate sale ranging from $25 to $50.
When comparing to similar U.S. cities, Chicago’s current transfer tax is higher than transfer taxes assessed in Los Angeles, San Francisco, Miami, Minneapolis, Atlanta, and Boston. Some of Chicago’s fiercest competitors for recent commercial office investment - Denver, Houston and Dallas - have no transfer tax.”
Fighting homelessness is certainly a worthy goal. But the methods being proposed to achieve it are not.
A final problem with the transfer tax proposal is that it depends on the volume of sales in any given year. With a still struggling downtown office market and recession fears top of mind, there is a good chance that an increased transfer tax would only further dampen demand for commercial properties. This is especially problematic as the city grapples with finding new uses for old office buildings for which demand has all but dried up.
Looking at these factors, one would think that the Chicago City Council might consider ways of trimming budgets in some areas to pay for budget increases in others as a more responsible way to pay for new, worthy programs. But “responsible” is not always the theme of City Council proposals. Tax cuts are politically difficult since someone has to live with less of something whenever programs are slimmed down or eliminated. Easier by far to simply raise taxes to pay for the latest program on the ever-expanding list of “must-fund” needs.
This particular tax proposal has been structured to give the appearance of only impacting “wealthy” owners since only properties valued at $1 million or more will be impacted. With a $1 million threshold, this burden will fall on almost all owners of commercial (including multifamily) properties, even those of relatively modest size.
While renters may not feel like they are being targeted in this effort, and might therefore be more favorably inclined to see the measure pass, this will impact their cost of living as well. Housing providers will have little choice but to further increase rents to cover the added cost of owning multifamily properties. And this comes on top of substantial real estate tax increases on commercial properties that were the result of increases in assessments under Cook County Assessor Fritz Kaegi. Second installment tax bills were released online in early November and are due by the end of December.
This transfer tax proposal comes at a time when inflation is at 40-year highs and fears of recession are growing.
It is regrettable, but not surprising, that our elected officials are pushing the responsibility of the homeless problem on the backs of those individuals and organizations that own real estate. It is a fallacy to believe that this tax will only impact the “wealthy” Chicagoans whose real estate this will impact. Finally, it is magical thinking to believe that the “wealthy” Chicagoans who are, increasingly, the targets of these tax increases will sit idly by as these mandates are piled one on top of the other.
Already, thousands of former Chicago residents have found other, less punitive and less expensive places to live, leaving Chicago with less wealth and greater need. The most notorious recent example is the departure of Ken Griffin and his company, Citadel, for the warmer and more business-friendly climes of Miami and Florida. The passage of the Bring Chicago Home ordinance would likely just provide more reason for others to follow his lead.
