The Chicago Tribune’s Eric Zorn did the math the Emanuel campaign’s claim that lowering the sales tax and extending it to luxury services would save the average Chicagoan $200 a year. His finding: you’ll need an annual income of $600,000 to save that much under the so-called “Rahm Tax”:
Think of it this way-- if you save a quarter of a penny for every dollar you spend on fully taxable goods in Chicago, then you save a penny for every $4 dollars you spend or a dollar for every $400 you spend. 400 x 200 = 80,000.
It looks like about 1/5 of after-tax income might be spent on transactions now subject to the sales tax. $80,000 times 5 is $400,000. To get to $400,000 after tax income, you’re earning in the neighborhood of $600,000 a year, unless my assumptions are way off.
In other words, the Rahm Tax might save Rahm $200.
The website FactCheck.org also looked at Emanuel’s claims, and found them impossible to verify, because no one knows yet which services will be taxes.
Setting the savings aside, Illinois’ Center for Tax and Budget Accountability thinks the Rahm Tax is a concept whose time has come. When sales taxes were introduced, purchases of goods made up most economic activity. Not anymore.According to the Center’s “Funding Our Future” report:
The main problem with the Illinois state sales tax (known as the Retailers’ Occupation and Use Tax and the “Service Occupation and Use Tax”) is that it does not apply to most services. In fact, of the 173 categories of taxable services recognized by the North American Industry Classification System, Illinois taxes only 17 – the narrowest base of all but four other states in the country ... [S]ervices now account for more than 60% of Illinois’ state GDP. The next largest sector accounts for less than half that amount.
As economic activity migrates to the service sector, taxation should follow it. Emanuel has the right idea, but he can’t sell it because a) he’s refusing to detail what services would be taxed, and b) he’s being dishonest about its impact on the average taxpayer.
FactCheck.org writes that “Chico falsely accuses Emanuel of proposing ‘the largest sales tax in the city’s history’,” but then calls it “a claim that nobody can make without more information.”
Until Emanuel gives us more information, he has no way to refute Chico’s criticism of the so-called “Rahm Tax.”
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