Mayor Brandon Johnson Thursday delivered on his promise to “challenge the ultra-rich” and make corporations pay their fair share, proposing a $16.6 billion budget for 2026 that includes $586.6 million in progressive tax and fee revenues and a record $1 billion tax increment-financing surplus to rescue the city and Chicago Public Schools.
The tax-heavy budget, which aims to erase a $1.15 billion shortfall, would hit Chicago businesses hard. It includes a revived and dramatically expanded employee head tax, a second consecutive increase in the tax on cloud computing, a first-of-its-kind social media tax and a broadening of the city’s amusement tax to include online sports betting.
In his budget address to the City Council, Johnson said Chicago is the 10th wealthiest city in the world, with 127,000 millionaires and 24 billionaires — while 1 in 4 Chicagoans under the age of 18 are mired in poverty.
“Our budget proposal asks large corporations and the ultra-wealthy to chip in more so that working families are not burdened with higher property taxes, or grocery taxes or garbage fees,” Johnson said. “This intense and growing wealth inequity is not sustainable for our city.”
The old $4/month per employee head tax, applied to companies with more than 50 workers, rankled businesses and ultimately was phased out by then-Mayor Rahm Emanuel in 2014.
The tax would be rebranded as the “community safety surcharge” and revived at a rate more than five times higher than it was — as if it had been retained and raised each year to match the rate of inflation. But the new $21/month per employee fee would only apply to companies with more than 100 workers. That’s roughly 3% of Chicago companies.
The expanded tax is expected to raise $100 million in annual revenue, though business leaders say it could stifle hiring, discourage corporate expansion and trigger a business exodus from Chicago.
“It’s not a job killer. It’s a job creator. The top priority that businesses have expressed over and over again is to ensure that our city is safe,” Johnson told reporters during a budget briefing this week. “We’re talking about 3% of companies who will be asked to put more skin in the game; 97% of businesses won’t be impacted by this.”
That’s not the only tax that targets the business community.
Johnson hopes to generate a $333 million annual windfall by raising the tax on cloud computing from 11% to 14%. That’s a 27.2% increase on the heels of last year’s 22% increase in that tax.
Expanded taxes ‘job-crushing’
Chicagoland Chamber of Commerce President Jack Lavin said the proposed 14% cloud computing tax would be the “highest in the nation,” and a “job-crushing sibling to the head tax.”
“Business and labor want to see cranes in the air. We want to see people employed,” Lavin said. “These taxes are a penalty for hiring people. These are quick fixes that are going to kill jobs.”
In an apparent attempt to counter any kind of lobbying campaign against the business taxes, Johnson is promising to isolate revenues from the head tax and the cloud computing tax into a segregated “community safety fund.”
The money would be used to bankroll all community safety programs. That includes what the mayor’s office calls the largest ever investment on community violence intervention, 30,000 summer jobs, expanded recreational programs for youth and programs that confront the perennial problems of gender-based violence and first responder wellness that has resulted in a wave of suicides by Chicago police officers.
The new tax on social media companies was billed as the first of its kind in the nation.
It’s expected to generate $31 million, with revenues isolated in a so-called “protecting care fund” that would be used to expand the number and quality of so-called “Care Teams” that replace police officers in responding to mental health emergencies. The money would also be used to reopen more mental health clinics or expand the hours of the handful of city clinics that Johnson has already reopened.
Both special funds would help brace and insulate Chicago’s social programs from the impact of federal funding cuts imposed or threatened by President Donald Trump.
“We’re either going to protect working people in Chicago from Trump’s cuts, or we are going to open up the flood gates and allow these individuals to be hurt and harmed further,” Johnson said.
Johnson used the same rationale to justify his surprise decision not to recommend that a reluctant City Council reinstate the 1% grocery tax eliminated by the state. Low-income individuals and families have already been hit hard by Trump’s cuts to the SNAP program.
Taxing social media
The tax on social media companies like Meta, TikTok, Instagram, X and Reddit would be applied at the rate of 50 cents per user in Chicago after the first 100,000 users. The political rationale for the tax is simple: Johnson told the City Council that social media companies that have been allowed to “collect our data and sell it for profit” have implemented “more and more aggressive strategies to get Chicagoans addicted to their apps.
“We’ve seen significantly higher trends in depression, anxiety and mental illness — especially in our young people,” the mayor said in his budget address. “Just like we tax other addictive vices that are bad for our health, like nicotine and tobacco, it is far past time we treat social media companies the same way.”
Lesser tax increases would impact large boats moored at Chicago harbors [$4.1 million] and hemp products [$10 million]. A congestion tax on ride-shares would move from a flat fee to a percentage applied to an expanded downtown zone — a measure that would generate an estimated $65.4 million.
Johnson campaigned on a promise to impose $800 million in new and higher taxes on businesses and wealthy Chicagoans to help bankroll $1 billion in “investments on people.”
But until now, he has made no progress on that front, in part because ideas like a corporate income tax and an expanded sales tax on professional services can only be approved by the Illinois General Assembly.
Johnson managed to get his proposal to raise the transfer tax on high-end real estate transactions before Chicago voters. But the mayor’s signature “Bring Chicago Home” referendum was resoundingly defeated after a multimillion-dollar lobbying campaign by Chicago real estate and business interests.
Another multimillion-dollar lobbying campaign is expected to be mounted this time by business leaders continuing their behind-the-scenes search for a mayoral challenger to Johnson.
But senior mayoral adviser Jason Lee said the dramatically expanded head tax and the higher cloud computing tax can be easily justified — even at a time when the job market and office vacancies remain stuck in the mud.
Lee pointed to the state’s decision to divert “hundreds of millions of dollars” in corporate tax revenues away from Chicago and other local governments, and to use that money for Illinois’ own “pressing needs.”
“If that number hadn’t gone away, there wouldn’t be a need for additional corporate taxes in the city of Chicago,” Lee said.
A much bigger TIF surplus in the works
Last year, Johnson declared a record $570 million TIF surplus. This year’s version would be twice as large — enough to allow the Chicago Public Schools to reimburse the city for roughly $140 million of a long-disputed $175 million pension payment for nonteaching school employees that prompted Johnson’s appointed school board to resign en masse and triggered the firing of former CPS CEO Pedro Martinez.
TIF surpluses are nonrecurring revenues. Johnson’s decision to use such one-time revenues to balance his first two budgets have prompted Wall Street rating agencies to reduce the city’s bond rating that determines the interest rate that Chicago must pay to borrow money to fund its operations and infrastructure projects.
The mayor’s decision to declare a $1 billion surplus could trigger further bond rating reductions. So could his decision to borrow and repay over three years the $185 million needed to cover retroactive pay raises for Chicago firefighters and dramatically reduce — to $120 million — the city’s annual “pension advance” over and above the state-mandated actuarial payment. That’s less than half of last year’s pension advance.
Lee argued that the mayor’s hands were tied by the partially elected school board’s decision to approve a budget that counted on the city to deliver a large TIF surplus.
“It probably was ill-advised to bank on that. But they did,” Lee said. “And now, we’re just faced with the reality that if they don’t get that money, then there can be even more negative consequences to the classroom and students — and that’s something none of us want when public education is also under attack and facing the loss of grants and other intimidations from the [Trump] administration,” Lee said.
Southwest Side Ald. Matt O’Shea (19th), a member of Johnson’s City Council leadership team, declared the mayor’s budget “dead on arrival,” predicting that business, labor and their Council allies would unite in opposition.
But Johnson’s progressive allies lauded the spending plan. Ald. Maria Hadden (49th) said the Progressive Caucus she co-chairs has been “pushing for progressive revenue for some time” with no results so far from state lawmakers.
“We don’t want to reduce services. We don’t want to increase property taxes and direct costs to constituents in that way and we don’t want to cut services and lay people off,” Hadden said. “So revenue is the solution.”
At $16.1 billion, Johnson’s proposed budget is down 3.2% from last year. It includes $200 million in spending “efficiencies” that includes $50 million from a “targeted hiring freeze” that exempts revenue-generating and public safety positions.
The budget does not eliminate any of the nearly 1,000 police vacancies, even though it does include a cap on police overtime beyond a “more realistic” $200 million figure that Police Supt. Larry Snelling “believes he can live with,” according to Budget Director Annette Guzman.
Overtime spending that exceeds the cap would have to be approved by the City Council.
The mayor is counting on only $44 million in casino-related revenue, in part because Bally’s temporary casino at Medinah Temple has underperformed and because he is not expecting Bally’s to complete construction of its permanent casino in River West until late next year.