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Chicago Hikes Phone Tax by 56% to Pay for Pensions

In an effort to shore up Chicago’s pension funds while avoiding property tax increases, the city is moving forward to increase taxes on cellphones and land lines by 56%. The move, which could cost a family of four an extra $34 per year, was reported to be part of a deal between Chicago Mayor Rahm Emanuel (D) and Illinois Gov. Pat Quinn (D) that will avoid raising property taxes in exchange for Quinn signing a bill that will increase city worker contributions by 29% while limiting benefits.

Considered to be the proverbial “third rail” by politicians, property tax increases would have resulted in substantially more revenue than the phone tax increase — an estimated $750 million over five years compared with the $10-$40 million that phone taxes are estimated to generate in 2015. But the property tax option is not off the table in the future, according to the Chicago Sun-Times

Like other states and municipalities, Chicago is facing large payments due in the future for significantly underfunded pension plans. They have to find new revenue sources (meaning taxpayers will have to chip in more), limit benefits for retired workers and increase payments by current workers, or some combination of the two options, as Chicago is planning. There’s no doubt that a reckoning is coming soon across the country — one that’s already playing out most prominently in Detroit, California and New Jersey.

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