Wednesday, July 8, 2015

Higher Taxes Coming To A City Near Your

Chicago, a large US city deep in debt and desperate for cash, has been quietly raising or trying to raise taxes this summer to close its billion dollar budget deficit. This aggressive policy shift is designed 'save the city' regardless of the political, social, and economic consequences. In a world driven by ego, self, and a policy towards legislated 'fairness', today's leaders tend to focus solely on the former (political). This should change, rather abruptly, as the world's financial and economic crisis, currently marginalized as solely a Greek and European problem, intensifies and spreads throughout the global economy.

Anyone living in or near Chicago likely know the following:
  1. The 'Cloud Tax', a 9 percent tax on products streamed to businesses and residents and online databases.

  2. Cook County residents facing a one penny to the dollar sales tax increase. This move would raise the sales tax to 10%.

  3. Chicago Mayor Rahm Emanuel is proposing raising $250 million and $328.6 million for schools and Chicago police and fire pensions through property tax increases. Chicago's underfunded police and fire pensions, the leader of communities across Illinois in similar trouble, could boost property taxes 30%.

While human capital and production are mobile, leaders will tax away as if they're not. The migration of productive, taxable human capital will shrink the tax base and leave city officials wondering why coffers continue to shrink despite their 'best' efforts. This will leave the naive calling for further taxation to pave the way to prosperity. The invisible hand shows us that capital is highly mobile. Chicago leaders better lock the gates, because people will start moving.


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