Looking to boost tourism, Chicago has taken a step almost certain to work against that goal: raising its hotel taxes to the highest level in the nation.
In March, the city council unanimously approved hiking the hotel tax in parts of the city, including downtown, to 19 percent from 17.5 percent. Mayor Brandon Johnson supports the increase, which is expected to generate $50 million a year, a sum that the city would devote to promoting tourism.
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Raising hotel taxes may seem like a politically painless way to raise funds—since the burden falls mainly on visitors, it looks like free money. But this assumption ignores a basic economic reality: demand for travel is not fixed. Visitors, event planners, and businesses respond to prices. When the cost of staying in a city rises, some will choose to go elsewhere.
That matters in a highly competitive market for tourism and business conventions. Cities such as Miami, Las Vegas, and Orlando have seen rapid tourism growth in recent years and compete aggressively for conventions and big events. Hotel tax rates are much lower in those three and other cities.
Chicago has historically benefited from its relative affordability for travelers compared with major U.S. cities such as New York and Los Angeles. With world-class infrastructure, top-tier attractions, and the nation’s largest convention center, McCormick Place, Chicago has long found tourism an economic bright spot, generating an estimated $20 billion in annual impact. Last year, Chicago tourism returned to pre-pandemic levels, and Cvent ranked the city third among meeting destinations in North America.
But as costs rise, Chicago’s advantages erode. Price differences matter at the margin, especially for event planners deciding whether to return every year. The hotel tax hike may undermine the tourism base instead of supporting its growth.
Chicago has seen how sensitive some events can be to economic pressures. The Plastics Industry Trade Association’s triennial show, the NPE, which had taken place in the Windy City since 1971, moved to Orlando in 2012, citing savings in the wake of the Great Recession.
Reliance on hotel taxes reflects a destructive pattern in Chicago’s fiscal policy: turning to narrow, politically convenient revenue sources instead of addressing core issues driving fiscal gaps. The city has used this approach with taxes on streaming services, sports betting, and social media to cover broader structural gaps.
A hotel tax increase may be less visible to voters and thus easier to pass, but research shows that these taxes often get passed on to consumers. After years of rising costs across the economy, such additional expenses become harder for visitors to absorb.
Tourism-related taxes are also volatile. They rise in good times but fall during economic downturns. Using them to support ongoing spending is a prescription for trouble. Consider what happened during the pandemic: Chicago visitor spending declined by 63 percent in 2020.
To maintain its position as one of the nation’s primary destinations for business, culture, and events, Chicago needs to stay competitive. Rather than raise the hotel tax, the city should focus on practical steps to make itself more attractive to tourists and conventions. One vital step: reducing crime and restoring public safety, especially downtown. Chicago would be better served by creating the conditions that attract more visitors—not by levying yet another tax that makes the city less appealing.