New York City Mayor Zohran Mamdani is delaying the city's $127 billion budget as he pressures the state to limit a tax credit used by hedge funds, private equity firms and other businesses.
Mamdani and City Council Speaker Julie Menin called on Governor Kathy Hochul and lawmakers in Albany to limit the city's pass-through entity tax credit on Tuesday. The break, known as PTET, allows business owners to bypass federal limits on state and local tax deductions.
"More than 95% of PTET credits go to those making more than $1 million a year," Mamdani said at a press conference inside City Hall. "The PTET credit is a tax cut for the rich."
Mamdani and Menin estimate limiting the credit from its current 100% level to 75% would
If enacted, the proposal would hike the tax bills of thousands of business owners, from retailers and restaurants to large partnerships in law, finance and health care. Corporate taxpayers, such as publicly traded companies, would not be affected.
Any changes to the tax credit would have to be made by state lawmakers and signed into law by the governor. Hochul, on Tuesday, said that she sees Mamdani and Menin's proposal as a personal income tax increase. "That's why it's not happening." she said. "We're not changing PTET."
Hochul has already pledged to help the city with its deficit by fully funding the first two years of Mamdani's universal childcare proposal and by pushing for a pied-a-terre tax on second homes in New York City worth more than $5 million.
"Governor Hochul and her team have been in ongoing conversations with the Mayor and City Council since January about state funding and potential solutions to their budget gap," a spokesperson for Hochul said in an emailed statement. "Delays in the city budget are a choice. The Mayor and City Council need to work together, identify savings, and close the remaining gap."
Tax credit cuts
Menin said that New York's narrowing of the tax credit would be "temporary," but didn't specify the length of time it would be suspended. Mamdani did not respond to questions about whether he agreed the credit should be limited permanently.
The PTET allows firms to elect to pay income tax on the profits owed to their owners. Since businesses aren't subject to the state and local tax cap, the PTET reduces the federal taxable income that flows back to them.
New York then provides the partners with a full credit for what was paid in state or city taxes. It was designed to help voters grappling with the fallout from the 2017 federal tax law, which set a $10,000 cap on state and local tax deductions. That limit has since been raised to $40,000.
Connecticut and Massachusetts have structured the tax so that individuals only get a partial credit in return, creating a revenue stream for the state. Menin said adjusting the New York credit down would bring it "in line" with those jurisdictions. Massachusetts limited its credit to 90%, while Connecticut caps it at 87.5%.
If the credit is curtailed too much, some may not see a benefit in paying the optional tax. That would limit the amount of revenue the city is after.
"The whole point of it was to make taxpayers whole," said Alysse McLoughlin, a New York partner in the tax practice group at Jones Walker LLP. "If they take too much, there's no reason to make these elections."
