Chicago Self Immolation

BJ prepares to fire the biggest kill shot into Chicago's future, sealing the death spiral into Detroit:

• The letters are stamped all over the hallways of Chicago’s giant skyscrapers and grand office buildings. DRW, IMC, CME, Cboe.

  These are some of the derivatives firms that collectively handle trillions of dollars a year in trades, greasing the wheels of global markets with everything from stock options to corn futures. Most of them have called Chicago home for decades — providing thousands of jobs within the city’s $75 billion finance industry.

  Now, the firms’ commitment to the Windy City is being tested by some $800 million in taxes proposed by a new mayor staring down a budget gap that’s swelled to half a billion dollars. One idea is a levy on financial transactions, which has alarmed companies already worried about a jump in crime that shows few signs of abating.

BJ thinks he can tax his way out of a rather large hole:

• One of his campaign proposals would generate $20 million annually by reinstating a $4 per employee tax on big businesses. An additional $100 million could come from raising the levy on high-end property purchases — the kinds of homes bought by wealthy finance workers.

  Most importantly for the derivatives industry, Johnson has floated seeking another $100 million with a levy of $1 to $2 for every securities contract traded. That would boost costs by as much as 800%, according to CME.

With downtown posting vacancy rates over 20%, and numerous high-rent leases coming due on mostly empty skyscrapers, a $4 per employee head tax will simply drive out businesses. Many downtown renters already have suburban campuses, so a shift to all suburban locales is a simple matter.

As for a transaction tax, one of the big companies (we can't remember which) ran a test the other month whereby all trading was routed through a duplicate trading floor set up out of Illinois. These aren't the old days of traders crowding the pits, yelling out orders, filling contracts like Dan Aykroyd and Eddie Murphy in Trading Places. Most of that stuff is already done by computers, trading hundreds-of-thousands of shares on tenths-of-percentage shifts in the market.

We are told it went flawlessly, which means that all it would take for them to abandon Chicago and the transaction tax would be a change in IP addresses, which is what one executive warns in the article. New York and LA already lost big companies controlling more than a trillion dollars....each. 

If these bean counters will move a trillion dollars worth of electrons based solely on New York and California tax policies, it's a safe bet Chicago isn't immune.