CHICAGO | Economic & Business Development

[marothisu]

It's not my data, it's the US Census data

This trend is anything but new. If you have paid attention to the Census data I've posted for a handful of years, this is the same story pretty much every year. At least since Rahm first became mayor.

Chicago including many suburbs has been expanding the tax base essentially by replacing low and middle earners by upper middle and upper earners. When i looked last year at the data, I found that Chicago was one of the only cities in America increasing $100K or $125K+ earners (forget which one) but decreasing anything below it. The other cities in the same boat? Hyper gentrification mainstay cities such as NYC, DC, SF, San Jose, etc.

There is a lot going on in Chicago for many years now in this way. Anyone who looks at the overall population number and doesn't even attempt to look like at the underlying data to see if anything else is going on (especially given the GDP still growing in a certain way) is a complete and utter beginner at economics.

Also, Miami for years has been a hotbed for rich people either parking their money in a condo or coming down a month or 2 per year. Its not much different than a variety of buildings in places like Manhattan. Only places like Manhattan and Chicago have a lot more people not moving there for retirement types of purposes.

[ardecila]

Originally Posted by the urban politician

^ That’s about the most positive spin on no population growth that one could ever make.

It seems to be borne out by the data. And it explains why we're not becoming Detroit or Cleveland, which many people have warned about after seeing the population numbers.

It also seems to fit the situation on the ground with regard to real estate - the map of wealthy/upper middle areas in Chicagoland appears to be holding its ground and slowly expanding... if the population isn't growing, that could only be explained by an exchange of low earners for high earners. (Of course, there are a few areas that do appear to be in active decline, like Homewood/Flossmoor.)

Looking at the population this way is a different lens to view political issues like the graduated income tax. On the one hand, it does suggest that there is a significant and growing pool of high earners who could be tapped to help fill the pension hole... on the other hand, I think politicians need to be careful not to kill the golden goose and send high earners fleeing to other states. Hopefully Joe Biden, if elected, will reinstate the SALT deduction which could soften the blow to Illinois taxpayers of the graduated state tax.

[BrinChi]

The continued increase in educated residents in Chicago is quite interesting as every month it seems I hear about another friend/acquaintance who decided to relocate for job or family... whether back to MN, MI, or OH. Someone's always moving away while rarely do I hear about moving back. I'm also 37 now so it might just be my age, and I just don't know all the 22-30 year-olds moving in. The annual tide of younger people moving in must more than offset the slow drip of people leaving. Most of the time I'm not hearing, "Dear God, I must get out of this place," more like: I found a great opportunity somewhere else and/or we just had our second or third kid and want to be close to family. 2020 numbers and 2021 numbers will be interesting but completely detached from broader trends because of covid.

Regarding the graduated income tax. I'm torn between the fairness of balancing the tax burden between low/high income and requiring structural reforms to stop the bleeding from pensions. Illinois hasn't proved itself to use additional funds responsibly. I'm afraid that it's a hole that we can't tax our way out of, so we might as well wait until crisis mode (thank you Covid-19) and let the Feds step in. On the other hand, if rates for the top 5% of earners went up while property taxes could level off or go down, it would be more fair and perhaps drive fewer people out of state. Right now I believe top earners pay an effective rate of about 7% of income to Illinois taxes (income + property + sales) compared to 13% for lower incomes. Numbers are from a Crain's article I read recently. That's just morally wrong.

[marothisu]

Originally Posted by BrinChi

The continued increase in educated residents in Chicago is quite interesting as every month it seems I hear about another friend/acquaintance who decided to relocate for job or family... whether back to MN, MI, or OH. Someone's always moving away while rarely do I hear about moving back. I'm also 37 now so it might just be my age, and I just don't know all the 22-30 year-olds moving in. The annual tide of younger people moving in must more than offset the slow drip of people leaving. Most of the time I'm not hearing, "Dear God, I must get out of this place," more like: I found a great opportunity somewhere else and/or we just had our second or third kid and want to be close to family. 2020 numbers and 2021 numbers will be interesting but completely detached from broader trends because of covid.

That's really nothing new though - Chicago, just like NYC, SF, LA, etc - is a highly transient city. There are always people coming and going. No matter what anyone wants to say, that is how it is and there is always data to back that up. When I lived in Chicago, I knew so many people who left. And then I'd meet so many people who had just moved there.

In 2018, Chicago MSA had an estimated 165,759 people move to it from outside of Illinois. If you remove Indiana from that, it's still 141,197 people. By contrast, the Los Angeles area had 136,537 people move to it from outside of California. Dallas had 158,059 people move to it from outside of Texas. The NYC area had 186,220 people move to it from outside of New York and New Jersey.

So Chicago aren't isn't really super different than these places with the incoming population. The problem is really keeping people in the Chicago area to begin with and other areas do a better job with that in the last numerous years.


https://flowsmapper.geo.census.gov/

[the urban politician]

Originally Posted by ardecila

It seems to be borne out by the data. And it explains why we're not becoming Detroit or Cleveland, which many people have warned about after seeing the population numbers.

It also seems to fit the situation on the ground with regard to real estate - the map of wealthy/upper middle areas in Chicagoland appears to be holding its ground and slowly expanding... if the population isn't growing, that could only be explained by an exchange of low earners for high earners. (Of course, there are a few areas that do appear to be in active decline, like Homewood/Flossmoor.)

Looking at the population this way is a different lens to view political issues like the graduated income tax. On the one hand, it does suggest that there is a significant and growing pool of high earners who could be tapped to help fill the pension hole... on the other hand, I think politicians need to be careful not to kill the golden goose and send high earners fleeing to other states. Hopefully Joe Biden, if elected, will reinstate the SALT deduction which could soften the blow to Illinois taxpayers of the graduated state tax.

It makes Illinois more vulnerable.

We are dependent on relatively fewer people with increased mobility to fund our system. I don’t think that’s a good place to be.

Better to have a large influx of younger people who are getting taxed less than a large number of aging higher income people who may or may not be committed to sticking around year after year, cold winter after cold winter

[ardecila]

Who said anything about age? People come to Chicago for different reasons but I have to imagine many of the incoming people, at least the domestic ones, are younger folks seeking a professional level career, not "aging higher income people". However, even the younger folks are often making respectable salaries at their entry-level jobs and helping boost the average.

Not sure why you would want a city full of people who are trapped.

[the urban politician]

Originally Posted by ardecila

Not sure why you would want a city full of people who are trapped.

^ Wow, you completely missed my entire point.

I've been on this forum long enough to know that internet debating is an utterly worthless exercise.

Plus this is the Economy Thread so........moving on

[ardecila]

Again, not sure what your point is. The alpha cities of the world usually have residents with very high mobility who choose to remain there for either lifestyle reasons, career/professional reasons, or both.

You see a stagnant population for Chicago, but I see a dynamic one that has large but roughly equal flows in and out. It's fortunate for our tax base that the inflow tends to be more highly educated and highly earning than the outflow.

"Loyalty" to a city is a tricky concept, but I think it's much better to have loyalty that is earned (through smart policy, livability, social equity/fairness, etc) than loyalty that is blind, from people who don't have the option of fleeing.

[emathias]

Originally Posted by BrinChi

...
Regarding the graduated income tax. I'm torn between the fairness of balancing the tax burden between low/high income and requiring structural reforms to stop the bleeding from pensions. Illinois hasn't proved itself to use additional funds responsibly. I'm afraid that it's a hole that we can't tax our way out of, so we might as well wait until crisis mode (thank you Covid-19) and let the Feds step in. On the other hand, if rates for the top 5% of earners went up while property taxes could level off or go down, it would be more fair and perhaps drive fewer people out of state. Right now I believe top earners pay an effective rate of about 7% of income to Illinois taxes (income + property + sales) compared to 13% for lower incomes. Numbers are from a Crain's article I read recently. That's just morally wrong.

I've always found it odd that if *I* - an upper-middle class professional - moved to California or New York, my tax burden would go up considerably, but when my working class or lower income "creative class" friends move to LA or Brooklyn, their tax burdens go down. That definitely is problematic from a policy standpoint.

[marothisu]

Originally Posted by emathias

I've always found it odd that if *I* - an upper-middle class professional - moved to California or New York, my tax burden would go up considerably, but when my working class or lower income "creative class" friends move to LA or Brooklyn, their tax burdens go down. That definitely is problematic from a policy standpoint.

My wife and I together here in NYC have a combined upper income (or so that's what some of the calculators say). The funny thing is that even if we moved to Chicago/Illinois with that salary, our effective income tax rate would come down multiple percentage points even with the proposed graduated tax for Illinois. We pay nearly 10% right now in state and local income tax living in NYC. In Illinois with the same salary under the new plan we'd be a little over 5%. Completely night and day.

In fact, there is not a single dollar amount with that new tax plan where we'd be paying more in Illinois than NYC. Even with a $9M salary we'd be paying a smaller percentage in Illinois than NYC. In Illinois that would be capped at 7.99% but in NYC we'd be paying 12.18%.

At our combined base income (my wife makes commission, so we usually make more) this is what the current tax rates are. Keep in mind, we are considered more upper income by some calculations. Not in the millions of dollars, but the statistical upper income..

NYC: 9.45%
Portland: 8.68%
Baltimore: 7.98%
Honolulu: 7.64%
Washington DC: 7.35%
Los Angeles: 7.27%
San Francisco: 7.27%
San Diego: 7.27%
Louisville: 7.12%
Philadelphia: 6.99%
Minneapolis: 6.74%
Detroit: 6.52%
Columbus, OH: 6.50%
Boise: 6.23%
Milwaukee: 6.08%
Cincinnati: 6.06%
Omaha: 5.98%
Kansas City: 5.76%
St. Louis: 5.76%
Chicago (proposed graduated tax): 5.54%
Arlington, VA: 5.47%
Atlanta: 5.44%
Jersey City, NJ: 5.07%
Chicago (current): 4.95%
Salt Lake City: 4.95%
Charlotte: 4.92%
Boston: 4.91%
Oklahoma City: 4.66%
Tulsa: 4.66%
Albuquerque: 4.40%
Denver: 4.28%
Pittsburgh: 4.07%
New Orleans: 3.92%
Phoenix: 3.45%
Houston/Dallas/Austin, etc: 0%
Miami: 0%
Nashville: 0%
Memphis: 0%
Las Vegas: 0%
Seattle: 0%

The only cities I'm interested in living that have a lower tax rate than Chicago are Boston, Denver, and Seattle. Outside shot to Miami and Pittsburgh and way outside shot to Dallas. No interest in any other place. Even Boise has a higher income tax rate than Chicago.

[sentinel]

Originally Posted by marothisu

My wife and I together here in NYC have a combined upper income (or so that's what some of the calculators say). The funny thing is that even if we moved to Chicago/Illinois with that salary, our effective income tax rate would come down multiple percentage points even with the proposed graduated tax for Illinois. We pay nearly 10% right now in state and local income tax living in NYC. In Illinois with the same salary under the new plan we'd be a little over 5%. Completely night and day.

In fact, there is not a single dollar amount with that new tax plan where we'd be paying more in Illinois than NYC. Even with a $9M salary we'd be paying a smaller percentage in Illinois than NYC. In Illinois that would be capped at 7.99% but in NYC we'd be paying 12.18%.

At our combined base income (my wife makes commission, so we usually make more) this is what the current tax rates are. Keep in mind, we are considered more upper income by some calculations. Not in the millions of dollars, but the statistical upper income..

NYC: 9.45%
Portland: 8.68%
Baltimore: 7.98%
Honolulu: 7.64%
Washington DC: 7.35%
Los Angeles: 7.27%
San Francisco: 7.27%
San Diego: 7.27%
Louisville: 7.12%
Philadelphia: 6.99%
Minneapolis: 6.74%
Detroit: 6.52%
Columbus, OH: 6.50%
Boise: 6.23%
Milwaukee: 6.08%
Cincinnati: 6.06%
Omaha: 5.98%
Kansas City: 5.76%
St. Louis: 5.76%
Chicago (proposed graduated tax): 5.54%
Arlington, VA: 5.47%
Atlanta: 5.44%
Jersey City, NJ: 5.07%
Chicago (current): 4.95%
Salt Lake City: 4.95%
Charlotte: 4.92%
Boston: 4.91%
Oklahoma City: 4.66%
Tulsa: 4.66%
Albuquerque: 4.40%
Denver: 4.28%
Pittsburgh: 4.07%
New Orleans: 3.92%
Phoenix: 3.45%
Houston/Dallas/Austin, etc: 0%
Miami: 0%
Nashville: 0%
Memphis: 0%
Las Vegas: 0%
Seattle: 0%

The only cities I'm interested in living that have a lower tax rate than Chicago are Boston, Denver, and Seattle. Outside shot to Miami and Pittsburgh and way outside shot to Dallas. No interest in any other place. Even Boise has a higher income tax rate than Chicago.

This is great information, thanks for posting - Even after the proposed graduated tax, Chicago is still better positioned than other major cities in the US, outside of Sun Belt locations.

[marothisu]

Originally Posted by sentinel

This is great information, thanks for posting - Even after the proposed graduated tax, Chicago is still better positioned than other major cities in the US, outside of Sun Belt locations.

I have a friend in Chicago who was telling me that Chicago is really one of the worst places. So I looked at this in a variety of cities from the lens of a more normal married couple. One that is making decent income, but not upper income. Let's call it upper middle.

I looked at many cities and looked at income tax, property tax, sales tax, etc and if the person buys a property at a little above median property price for a certain area.

Chicago ended up in the middle of around 40 cities I looked at regarding how much money you'd have left over after income tax, property tax, sales tax, housing costs, etc all at similar incomes and spending levels (i.e. at stores).

I can attest too - I moved to NYC after Chicago. Instantly my income tax went up nearly double of that in Chicago. My rent went way up for way less as well. People may point to a lower property tax rate, but that doesn't matter at the end of the day. Properties are 3X or more in NYC of what you'd pay in Chicago. Even a house in the very edge of the city in the Bronx is going to cost you minimum $600K or $700K. The 1 bedroom condos in the building next to us start at $1.1M. The wages in NYC are not 3X more than Chicago. It's more like 25% more. Same thing will happen in other places.

At the end of the day, Chicago ended up being similar to a place like Minneapolis in terms of how much money you'd have after normal taxes (income, property, sales) and housing.

[sentinel]

I read this article today about how climate change may affect parts of the country over the next 20 years:

https://www.nytimes.com/interactive/...e-climate.html

The maps are interesting because we're already seeing the effects right now: extreme drought and wildfires in the west, extreme flooding in the gulf coast and mid-atlantic, increased heat in the mid central part of the country. Even though Chicago is forecast to have increased rainfall according to the maps in the link, it may not be as persistent and consistent as other parts of the country; and as much as people shit on the Deep Tunnel network, it may end up playing a more significant role in local flood water management as it approaches full completion by 2029.

But I wonder how other cities' migration patterns will be affected by natural disasters in the coming decades. Will people move away from the gulf coast, west coast and mid-atlantic back to the Great Lakes region/'rust belt'? Will they stay where they are because of perceived benefits outweighing increasing risks and increasing insurance? Is Chicago better positioned as a relative calm compared to other cities that are currently growing, but are at greater risks for future natural disasters, even though it has it's own climate-related issues (let alone political and social issues...even though all cities have problems)?

[SIGSEGV]

I'm not sure why water stress is listed for Cook County? Maybe for the non-lake adjacent communities?

[sentinel]

Originally Posted by SIGSEGV

I'm not sure why water stress is listed for Cook County? Maybe for the non-lake adjacent communities?

I believe that is correct.

[the urban politician]

Bronzeville’s home boom accelerates

https://www.chicagobusiness.com/resi...om-accelerates

[marothisu]

Originally Posted by the urban politician

Bronzeville’s home boom accelerates

https://www.chicagobusiness.com/resi...om-accelerates

Makes sense..

In the 12 months ended Sept. 23, 84 homes in Bronzeville sold for $500,000 or more, compared to 59 in the previous 12 months. When Crain’s first started documenting the boom in half-million-dollar sales in Bronzeville, in June 2019, there had been 34 houses sold in the price range in the prior year.

Most of the sales are new construction on formerly vacant lots, or rehabs of the handsome 19th- and early 20th-century homes that remain on many blocks in the historic swath of the South Side that runs from 31st Street to 51st Street east of the Dan Ryan Expressway.

Half-million-dollar home sales are becoming old news in Bronzeville, as more than a dozen recent sales were in the $600,000s or higher. In 2020 there have been two sales at over $800,000, including the record-setter: a 4,500-square-foot house built in 2011 on Oakwood Boulevard that went for $895,000.

[emathias]

Originally Posted by marothisu

My wife and I together here in NYC have a combined upper income (or so that's what some of the calculators say). The funny thing is that even if we moved to Chicago/Illinois with that salary, our effective income tax rate would come down multiple percentage points even with the proposed graduated tax for Illinois. We pay nearly 10% right now in state and local income tax living in NYC. In Illinois with the same salary under the new plan we'd be a little over 5%. Completely night and day.

In fact, there is not a single dollar amount with that new tax plan where we'd be paying more in Illinois than NYC. Even with a $9M salary we'd be paying a smaller percentage in Illinois than NYC. In Illinois that would be capped at 7.99% but in NYC we'd be paying 12.18%.

At our combined base income (my wife makes commission, so we usually make more) this is what the current tax rates are. Keep in mind, we are considered more upper income by some calculations. Not in the millions of dollars, but the statistic.
...

Yeah, I figure with the sizable hints you've dropped that with your combined income together you two earn about double my estimated income for this year and going forward. Chicago is still a relative bargain, but my boss (the CEO of the company) tells me that in his social circle he's had multiple high income professionals planning to move places like Texas. Doctors and lawyers and other executives. They'll definitely save on income taxes but I wonder if they'll actually save overall. I don't see the savings being enough to offset the disruption of moving unless they were already planning to move for other reasons. You and I have pretty similar desires for urban lifestyle and I know I don't want to move because the places I'd wan't to move don't offer savings. I think part of their concern is that once we go to a progressive tax rate, adjusting the upper ends will be easier, so maybe they don't see the initial rates holding and instead see their income just continuing to get eaten up by rising income taxes. I think that may be the larger concern rather than just this initial change. And they're probably right - I'd be surprised if this initial change is the end of the income tax hikes. Especially since the current tax rate was supposed to drop back to 3.75%, which of course it never did. I like Chicago enough that taxes aren't going to be what drives me away unless they get truly insane. But for younger families or people who have a blinding (irrational in my mind) hatred of taxes, it could certainly push them out, especially if they don't fully account for other taxes.

And don't discount the peer pressure - I've seen plenty of high income people make decisions based on peer pressure - certain people feel like if they *don't* move that their peers will think they're dumb for being willing to pay the be tax rates. It seems absurd to me, but I've seen it more than once, so I can't discount that as being a problem. Rich people are sometimes even more sensitive to social pressure since at the high end networking and social status drives a lot of decisions and opportunity.

[marothisu]

Originally Posted by emathias

Yeah, I figure with the sizable hints you've dropped that with your combined income together you two earn about double my estimated income for this year and going forward. Chicago is still a relative bargain, but my boss (the CEO of the company) tells me that in his social circle he's had multiple high income professionals planning to move places like Texas. Doctors and lawyers and other executives. They'll definitely save on income taxes but I wonder if they'll actually save overall. I don't see the savings being enough to offset the disruption of moving unless they were already planning to move for other reasons. You and I have pretty similar desires for urban lifestyle and I know I don't want to move because the places I'd wan't to move don't offer savings. I think part of their concern is that once we go to a progressive tax rate, adjusting the upper ends will be easier, so maybe they don't see the initial rates holding and instead see their income just continuing to get eaten up by rising income taxes. I think that may be the larger concern rather than just this initial change. And they're probably right - I'd be surprised if this initial change is the end of the income tax hikes. Especially since the current tax rate was supposed to drop back to 3.75%, which of course it never did. I like Chicago enough that taxes aren't going to be what drives me away unless they get truly insane. But for younger families or people who have a blinding (irrational in my mind) hatred of taxes, it could certainly push them out, especially if they don't fully account for other taxes.

And don't discount the peer pressure - I've seen plenty of high income people make decisions based on peer pressure - certain people feel like if they *don't* move that their peers will think they're dumb for being willing to pay the be tax rates. It seems absurd to me, but I've seen it more than once, so I can't discount that as being a problem. Rich people are sometimes even more sensitive to social pressure since at the high end networking and social status drives a lot of decisions and opportunity.

Yeah - I mean there have been people also in NYC and California, as well as some other places going through the same motions. I think it's also inevitable that some are going to want that. By and large though, for the time being at least, most will probably stay put. I have a friend who works for Schwab who are moving from SF to the suburbs of Dallas. Apparently a bunch of high up execs are not happy and are either going to stay put in the SF area or quit over it. As you said, Chicago is still a relatively good deal with all of this. There is no doubt though that raising taxes all the time is a slippery slope and it's not something that should be done.

I was actually have this conversation with my wife and a friend last night. Although taxes are lower in some places, the wages are not necessarily always higher. One thing that matters is the percentage of your income paid towards housing costs.

2019: Percentage of households paying 35%+ on rent
San Francisco: 24.27%
DC: 33.79%
Seattle: 33.99%
Phoenix: 36.41%
Austin: 36.49%
Dallas: 36.52%
Chicago: 38.67%
San Jose: 41.19%
Tampa: 41.41%
Jacksonville: 41.61%
San Diego: 42.41%
Houston: 43.05%
Orlando: 43.73%
Los Angeles: 47.60%
Miami: 51.04%

More to come..but as you can see here, every major city in Florida and even Houston has a higher percentage of people paying a minimum of 35% of their gross income on rent.


Regarding peer pressure - yeah I've seen it. I have some friends who are wealthy and succumbed to the same thing. There are a few I know who moved to Florida for other reasons, but then for a defense mechanism later would claim it was because of taxes. It had nothing to do with taxes originally so it would be weird to hear them say these things later. My grandmother's cousin was fairly well off and I remember he and his wife would do things for peer pressure sake, like make a $200K kitchen renovation in the late 90s, just because their neighbors did it and were getting pressure to do the same. Such a weird thing really.

[OrdoSeclorum]

Originally Posted by sentinel

But I wonder how other cities' migration patterns will be affected by natural disasters in the coming decades. Will people move away from the gulf coast, west coast and mid-atlantic back to the Great Lakes region/'rust belt'? Will they stay where they are because of perceived benefits outweighing increasing risks and increasing insurance? Is Chicago better positioned as a relative calm compared to other cities that are currently growing, but are at greater risks for future natural disasters, even though it has it's own climate-related issues (let alone political and social issues...even though all cities have problems)?

Yes. No doubt. It's not likely that many people will be affected by a fire, drought or hurricane and say, "screw it, I'm moving to Chicago or Milwaukee." But people being displaced will move to where they have family or where they have jobs or where it's affordable.

Even if there's no displacement, businesses will be more likely to invest in stable, predictable environments, which means the Great Lakes benefits by default. And access to water and lower prices for insurance and other disaster-related externalities will tilt affordability away from places that are climate change vulnerable.