Chicago Expands “Amusement Tax” As It Inches Closer To Bankruptcy

by Duane Norman, Free Market Shooter

In 2015, the city of Chicago expanded its “Amusement Tax” in an effort to combat the city’s massive budget deficits.  The tax, which originally applied to concert tickets and other entertainment events, was expanded to target citizens who have cancelled cable, by taxing online streaming services:

Chicago is about to become a little less welcoming to cord cutters, with the city authorizing an ‘amusement tax’ on online streaming services like Netflix and Pandora. Under this, subscribers are going to be paying a 9-percent tax on their various cloud-based streaming entertainment services, as well as for the ‘privilege’ of playing games online.

The tax is estimated to result in an additional $12 million a year for the city, and is the latest in a long line of efforts to combat a growing budget deficit.

The irony of Chicago (and the equally-bankrupt state of Illinois) giving hundreds of millions in tax breaks to the companies that produce the content that is streamed on Netflix and Amazon, then taxing the consumer at a 9% rate to consume these services, should not be lost on anyone.  But video gamers who use PlayStation services got a rude awakening that they will be assessed the tax as well, thanks to a new “deal” between Sony and the city:

Chicago’s amusement tax expansion, which financially punishes cord-cutters for non-participation in the city’s tax revenue collection scheme, almost certainly collects far less revenue than it was originally intended to.  This being the internet, the tax is likely relatively easy to dodge, much like Philadelphia’s “Soda Tax”:

To hit its annual target, the city needs to collect $7.6 million a month in tax revenue. The first collection was due Feb. 21 but collection information won’t be available until next month.  Early projections from the city’s quarterly manager’s report predict only $2.3 million will come through in the first collection.

However, since Chicago has narrowed its budget deficit considerably in the past few years, it can be all but expected that tax-and-spend inner city politicians will see Chicago’s tax on the internet as “easy money” – and move to implement it themselves.  This would be especially ironic if it were implemented in Philadelphia, which has doled out massive sums of money to cater to Comcast, which is now the proud owner of the city’s two largest buildings, amid plans to add a third:

Comcast’s growth has been so strong that it is rumored to be planning a third skyscraper between Arch and Cherry streets and 19th and 20th streets due to a series of property buys made on the block by both the company and Liberty Property Trust, the Inquirer reports.

As the nation’s big cities face increasing budget shortfalls due to their own mismanagement, excessive tax increases like Chicago’s “Amusement” and Philadelphia’s “Soda” taxes will be implemented in an attempt to combat them. These taxes always collect far less revenue than projected, often ending in a net negative for the city’s bottom line, when lost jobs and sales are factored in.

In the case of Chicago’s amusement tax targeting consumers, it comes with an added irony factor, as many of the city’s residents (and the affected companies) are “net neutrality” proponents.  The tax forces consumers to pay more for access to specific traffic and data – precisely what net neutrality was designed to avoid.

Graphic courtesy of Statista

The reality is, net neutrality was always a Trojan horse, acting as a massive barrier to entry for all upstart internet streaming companies under the guise of a “free internet”, which is why Netflix/Google/Amazon lobbied so heavily for it.  By treating all traffic as equal, services such as Netflix were free to use 35% (or more) of internet traffic without repercussions, which enables them to easily provide greater quality service than any potential upstart.

While it remains to be seen if the big cable/fiber media conglomerates will use pricing power to drown out the competition, the fact of the matter is, without a mechanism to appropriately price the biggest-ticket offenders, the cost of bandwidth hogs would always be “socialized” across everyone’s bill.  Of note, this is how internet users are already treated by cable companies – the biggest downloaders are known to have their connections throttled and/or cancelled for excessive bandwidth use.

Up next – metered connections, taxed by the megabyte.  Those cities have to fill their budget shortfalls somehow, and big media isn’t going to let anyone but John Q. Taxpayer pick up that bill.  

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