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Quarter cent tax cut, but sales tax still highest in Chicago

Cook County Board President Toni Preckwinkle  |  Sun-Times Media

Cook County Board President Toni Preckwinkle | Sun-Times Media

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Updated: February 2, 2012 8:15AM

Starting Sunday, the next time you dine out or buy a big screen television in the Chicago area you should find a little extra change in your pocket.

That’s because the dawn of the New Year means Cook County’s sales tax falls a quarter cent. In most parts of Chicago, the combined city, county and state sales tax rate falls from 9.75 percent to 9.5 percent on all retail purchases except groceries.

Likewise, taxes on a restaurant tab will fall a quarter cent but will vary depending where you dine out. Restaurants inside a special taxing district that includes downtown Chicago will see taxes fall from 11 percent to 10.75 percent, for example.

But don’t get too excited: Chicago retains the dubious distinction of having the highest sales tax rate of any big city in the nation. In second place is Phoenix, followed by New York City, according to the Chicagoland Chamber of Commerce.

“I’m disappointed that even after the reduction, we’re still at the top of the mountain — a mountain we don’t want to be at the top of,” said Jay Stieber, executive vice president and general counsel for Lettuce Entertain You Enterprises, which owns 80-plus restaurants in Chicago and across the U.S.

Still, he and others call the rollback good news for consumers and businesses.

“Basic economics teaches us that if you lower the price of doing something, people will do more of it,” Scott W. Drenkard, an analyst with the independent Washington, D.C.-based Tax Foundation, wrote in an email to the Sun-Times.

“While Cook County may have a ways to go before it is competitive with its neighbors in Wisconsin, this is a step in the right direction.”

Suburban commissioners have complained businesses there were hit hard as consumers flocked to neighboring counties with lower sales tax rates.

Cook County’s sales tax became a political football almost instantly in 2008 when a majority of commissioners, at the urging of then-Board President Todd Stroger, voted for a penny-on-the-dollar sales tax hike. That pushed Chicago’s overall tax rate on most retail purchases to double digits: 10.25 percent.

The money was needed to plug a budget hole and keep the doors open at the county’s public health system, Stroger and others argued.

But as the economy tanked and the 2010 elections neared, county commissioners feared a backlash at the polls and rolled back the unpopular sales tax increase by a half penny.

Voters sent Stroger packing. Toni Preckwinkle, a former Chicago alderman, easily won the board presidency on a vow of rolling back what was left of the tax hike.

She quickly struck a deal with commissioners, winning enough votes to slash the remaining half penny: a quarter cent now and a final quarter cent next January. Once the full penny is gone, the county is projected to lose $440 million annually.

“It’s a savings to the 5.28 million people in Cook County, but it is a loss of revenue for county government operations,” Preckwinkle told the Sun-Times recently. “We know these are difficult times for everybody and we have to figure out a way to manage in a time of declining resources.”

To shore up costs in 2012, some 800 layoffs and roughly $50 million in new and increased fees along with hikes of other taxes are planned. That includes boosting the levy on alcohol that adds up to just under two cents to the cost of a six-pack of beer, roughly two to three cents on a bottle of wine and 10 cents on a fifth of hard liquor — starting Monday.

Cook County’s sales growth was 0.8 percent worse than the collar counties in the first half of 2011, the most recent data that was available, and the high sales tax is a contributing factor, says DePaul University Professor Joe Schwieterman, whose been studying retail spending and the effects of the sales tax hike.

“Cook [County] should be outperforming the region due to all the new retail inventory ...coming online,” including the influx of big box retailers in the area, he said. “Cook County was consistently outperforming the Collar Counties before the sales tax increase largely for this reason.”

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