Tuesday, November 15, 2011
Crain's Chicago Business
by Joseph Schwieterman

This week, as Cook County wrangles with its budget, board President Toni Preckwinkle will be asked to defend her plan for a rollback, by a quarter-cent, of the county sales tax. Critics will point to the county's need for revenue as a reason for postponing the cut. But my analysis suggests that such a delay would only continue to hurt consumers and make the county's retail sector less competitive.

The 2008 sales tax increase enacted by then-President Todd Stroger added a penny per dollar to the tax rate while offering taxpayers little in return. This decision cemented Cook County's reputation as a notoriously tax-unfriendly place. In its aftermath, three compelling arguments for moving ahead with the proposed cut have emerged:

Retail trends are disturbing. In the two-and-a-half years leading up to the 2008 tax hike, retail sales growth in Cook County outpaced that of collar counties, bringing new jobs and commercial opportunities to the area. Since then, Cook County has lagged behind outlying counties by more than a full percentage point, according to my analysis of data from the Illinois Department of Revenue.

In theory, such a dramatic reversal of fortunes shouldn't have occurred. New retail space has been added faster in Cook than in the collar counties since 2008. Big-box retailers — Target, Wal-Mart and others — are becoming more prominent at locations in Chicago and close-in suburbs. But these gains have not offset other losses. A modest “bounceback effect” occurred after Cook County rescinded half of the tax increase in 2010. This uptick, unfortunately, has not been enough to erase the damaging effects of the '08 increase.

Avoidance is growing. Both consumers and businesses are becoming more adept at escaping the tax burden. In group settings with young people, I'll frequently ask them how they shop, and more than half say they have increased their online shopping for big-ticket items, in part to avoid taxes. Many businesses channel transactions to low-tax areas, a practice that the Regional Transportation Authority is challenging in court. The sales tax rollback would alleviate these pressures and create a friendlier environment for both businesses and consumers.

The squeeze on local government. The Cook County sales tax hike has placed a considerable amount of pressure on village governments, which now face a fed-up citizenry unwilling to listen to even reasonable proposals for enhancing revenue. Nowhere is this issue more evident than in suburban Cook County, where businesses face tax rates several points higher than in neighboring towns. Some communities have begun rebating a portion of their tax proceeds to prospective retailers in an attempt to lure them to their community.

Rolling back the sales tax will demonstrate that the county can make hard choices in tough economic times that in the long run will strengthen our local economy, and benefit both consumers and businesses, while giving municipalities that suffer from a weak retail sector more breathing room to make ends meet.