Chicago’s City Council is preparing to consider budget proposals from Mayor Brandon Johnson aimed at closing an $882 million shortfall in the city’s 2027 budget. Central to the discussion are two significant business tax increases: raising the city’s lease tax on software and equipment from 15% to 20%, expected to generate $234 million, and implementing a $25 monthly per-employee tax on employers with more than 125 full-time workers, projected to bring in $102 million.
These measures, while comprising a relatively small portion of the city’s estimated $6.5 billion operating budget, directly increase the cost of job creation within Chicago. The mayor’s office has emphasized investments targeting working residents, but analysts warn that taxing jobs may discourage employers from expanding locally, contributing to the city’s rising unemployment rate, which stood at 5.9% in August— the highest among the nation’s 25 largest cities.
An economic analysis examining tax burdens across major U.S. cities found Chicago already among the most expensive for businesses, with this proposed budget exacerbating the situation. For example, a professional services firm with 2,000 Chicago employees—representing roughly one in seven private sector jobs—typically spends $18.9 million annually on software and cloud services. Presently taxed at 15%, the proposed increase would raise this to 20%, increasing the firm’s tax bill from $2.8 million to $3.8 million, substantially higher than the average city tax rate. Additionally, the new payroll tax would add approximately $600,000 annually for such a firm, potentially incentivizing companies to allocate investments outside Chicago.
Similarly, a technology company with 150 employees, the type of firm the city seeks to attract, planning to add a 20-person team would face combined taxes of $129,000 in Chicago, nearly four times the $33,000 seen in peer cities. This higher tax burden could reduce project profitability by over $350,000 across five years, undermining incentive to expand locally.
Smaller businesses also face increased costs under the proposal. A young food and beverage producer in Chicago’s robust manufacturing sector, employing 22 workers and generating $3.4 million in revenue, would see its lease tax on equipment rise from $24,000 to $32,000. Most other large cities exempt such leases, highlighting Chicago’s relative tax burden on emerging industries.
Chicago’s overall tax environment combines this proposed lease tax increase with an already high commercial property tax rate of 3.36%, the highest among peer cities, resulting in total local tax costs surpassing combined state and local taxes in other markets. Studies have linked higher corporate and payroll taxes to reduced employment growth, and research indicates that the $25-per-worker head tax resembles state payroll tax increases known to hinder hiring.
Johnson’s administration argues that the payroll tax would affect only about 3% of city businesses, though these represent over 25% of private sector jobs. The lease tax, by contrast, applies broadly. Critics contend that such taxes could drive businesses and jobs away amid a sluggish local economy that has grown at only a third of the national rate since 2019.
Opponents suggest Chicago explore alternative revenue sources before raising taxes, including fees for expedited permits, cost-aligned service pricing, and privatization of city services such as garbage collection, which currently runs a $147 million annual deficit. They urge more efficient management of city operations rather than imposing additional financial burdens on employers.
Known as Johnson’s “Fair Share” budget, the proposals target business contributions to city revenues. Observers note that if businesses reduce hiring or relocate, the intended beneficiaries—Chicago workers—may ultimately bear the greatest economic impact.