Rahm Emanuel plays on lowering the sales tax, by raising it



“I’m not for a toll on Lake Shore Drive, I am not for a citywide income tax, I’m not for increasing property taxes, I’m not for increasing sales tax.”  That’s Chicago’s mayor Rahm Emanuel, committing again to his campaign promise to relieve the burden for the poor people of Chicago by not expanding taxes that would hurt them directly the most.

It sounds good, but of course it’s doublespeak.  Mayor Rahm says he wants to cut Chicago’s portion of the sales tax by 20% (from 1.25% to 1.00% for Chicago’s share, or actually from 9.75% to 9.50% when you include cook county’s larger take).  ”Rahm’s cutting the income tax by 20%!” is what his supporters will shout, and what everyone will hear.

The problem is, it’s not true beyond just that one figure.  I could tell people I’m cutting my hair short every week, but I’m really just trimming half of my bangs and letting the rest grow.  Sure, it’s true that I’m cutting my hair, but it’s only SOME hair, and with the rest growing longer, overall my hair would be longer.  Rahm may be cutting the taxes, but he’s raising the overall total sales tax by… taxing services.  In Chicago, the sales tax isn’t applied to service labor, only to items you purchase.  Buy a TV, pay sales tax; have a TV repaired, don’t pay sales tax.  Pretty simple.

An hour-long scan throughout the news sites show almost nothing about what Mayor Rahm wants to start taxing, but he hints at wanting to tax service that only “the rich” use.  Barbers and lawyers, he says, are two categories that are use predominately by the wealthy.  Is that true?  Poor people don’t get their hair cut?  Poor people don’t try to start businesses to cut hair?  Poor people don’t need to defend themselves in court or sue someone to protect their assets?

When a new tax is introduced, it’s rarely used to specifically help the poor, even if that’s what it’s sold as.  Taxing barbershops means that people who want to be barbers will have to raise their prices to consumers in order to pay the tax.  For a large barbershop chain, this isn’t a big deal: they already have gotten over the first few years of hurt that all new businesses have to go through, they know what their overhead and costs are, they have their brand sold and consistent clients — sometimes a large business can absorb some new costs and not pass on big price increases to their customers.

On the other hand, an individual who has saved for a few years to start a new business and run things by themselves does have to consider how they’re going to pay a 10% tax: do they pass it on to their customers and charge more and possibly not be able to compete against the established competition?  Do they swallow the tax and earn 90% of what they’d be able to earn free of the tax?  Sales taxes, even on high priced services, close doors for the poor.  They reduce entry level jobs (which are the first to be chopped when revenue is decreased), they make it harder to enter a market (protecting the established businesses at the expense of new competition), they increase paperwork for new businesses that may not be able to afford a full time accountant, they increase bureaucracy meaning that new business owners have to learn and be aware of additional red tape just before they can open their doors.

Here’s another thought: wealthy people don’t have to worry about the sales tax as much: (1) they can probably afford it (as Rahm says), and (2) they have cars to take themselves out of the city to acquire services or products where the tax isn’t charged.  My poor friends pay $9-$10 per pack of cigarettes in the city; my wealthy friends often drive 20 minutes out of the city once a month and buy packs of cigarettes for $4.50 a piece.  A poor person may pay $20 for a haircut in an urban salon, with a $2 increase in costs through a service sales tax; a wealthy person who drops $250 at the salon may decide it’s worth it to drive to a nice, quiet full-service salon just 15 minutes north of the city to save $25 in taxes.

It’s unknown what individuals will do if there’s a newly added service sales tax, but the fact is, any sales tax addition won’t harm the wealthy one bit: they have options.  The poor, on the other hand, don’t have as many options and will either have to pay extra, or do without for longer.

Related posts to peruse:

  1. A funny thing happened on the way to the grocer’s
  2. In Defense of Capitalism
  3. Protesting versus Lobbying: a primer
About A.B. Dada

A.B. Dada resides in Chicago, Illinois and manages a multitude of businesses involved across a wide range of industries.

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