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Monday, October 12, 2015

City fucks small businesses with the new tax hike

It is a shame that small businesses have to feel the effects of tax hikes. How is it big business gets tax breaks but small business does not. Because big business is in bed with the politicians that's why.

At the Wieners Circle in Lincoln Park, Ari Levy is starting to fret about how to pay his portion of Mayor Rahm Emanuel's proposed $588 million hike in property taxes, the largest such increase in Chicago history.

The restaurant's total tax bill would climb about $3,197 after the increase is phased in over four years, equivalent to 750 sandwiches.

“That's a lot of hot dogs,” says Levy, who in August led a group of investors to buy the Clark Street eatery, known for raucous exchanges of insults between staff and customers. “Can you increase prices?”

Yet the Chicago investor, citing the city's perilous financial condition, says, “They have to do something.”

While business owners and real estate developers grumble about the massive tax hike, few are willing to publicly challenge the mayor's proposal. The muted response partly reflects City Hall's historic grip on the business community, which needs the mayor's blessing for even small moves. It also is an acknowledgment that Emanuel has few options as he scrambles to make up for long-overdue payments to the police and firefighter pension plans.

But the mayor's call to increase the tax break for homeowners has struck a nerve, reviving objections that commercial and industrial properties already pay a disproportionate share of property taxes.

Citywide, Emanuel's proposal would increase total tax bills by 13 percent, including levies by schools and other local governments. But he also is seeking to double the homeowner's exemption, to $14,000, which would reduce taxes for about 419,000 households.

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For properties that don't receive the homeowner's exemption, such as office buildings and warehouses, the total tax bill would rise as much as an additional 5 percentage points, according to Molly Poppe, a spokeswoman for the city's Office of Budget and Management.

An 18 percent increase means taxes on the office tower at 155 N. Wacker Drive would leap nearly $2.2 million, to more than $14.3 million, Crain's estimates. Taxes would shoot up to $12.44 a square foot from $10.54 at the nearly 1.2 million-square-foot building. That's the equivalent of nearly 5,500 hours of work for the consultancies and law firms that occupy the structure, assuming an hourly rate of $400.

Emanuel contends Chicago's economy, particularly the thriving downtown, can absorb the additional cost, but others are less sure.

“It is really hard to discern what impact that tax increase will have, given the advantages of having offices and hotels and apartments in the central business district, and retail,” says John Buck, chairman of the Chicago-based firm that developed 155 N. Wacker. “It is unfortunate that government has to do this, but it has to happen.”

On the South Side, taxes on the Ford Motor assembly plant would jump nearly $190,000, to more than $1.2 million. The increase is roughly equivalent to the retail price of six Explorer SUVs, which are made at the 2.8 million-square-foot facility. A Ford spokesman declines to comment.

Despite backing the tax hike, the Chicagoland Chamber of Commerce and other business groups oppose increasing the homeowner's exemption, which would require state approval. Gov. Bruce Rauner has all but said he would veto such a measure.

Commercial and industrial properties account for 19.5 percent of the fair market value of all real estate in the city, according to Crain's analysis of data from the Cook County assessor. Yet those properties account for 38.7 percent of the taxes paid, according to the Cook County clerk's office, which calculates tax rates.

Nonetheless, the Emanuel administration defends asking business to pay a larger share.

“The necessary property tax increase for our police and fire pension funds should be borne by those who can best afford it and should not hurt middle- and lower-income families and seniors,” Poppe says.

The disparity is largely the result of a classification system, unique to Cook County, under which residential properties are taxed on 10 percent of their value, compared with 25 percent for business properties. Elsewhere in Illinois, all properties are taxed at a third of value. The Cook County system has been a gripe of business owners for decades.

The tax hike comes on top of a city ordinance, backed by Emanuel, which raised the minimum wage to $10 an hour in July, from the statewide figure of $8.25 an hour. The minimum goes up to $13 an hour by 2019.

“On a pure dollar basis, the labor cost increases are far more significant,” says Levy, who in addition to owning Wieners Circle is a director of fast-food chain Del Taco Restaurants in Lake Forest, Calif.