Governor Kathy Hochul and New York City Mayor Zohran Mamdani have finally found a tax that they agree on. Getting everyone else on board stands to be more complicated.
Mamdani has been an eager proponent of taxing wealthier New Yorkers to close a projected $5.4 billion two-year gap in the city's budget and to fund a slew of social programs.
Hochul has tended to see such levies as an invitation for the affluent and corporations to pack their bags and decamp to sunnier, low-tax states.
This week, Hochul proposed a middle path. To applause from the mayor, she called for slapping owners of second homes in the city worth more than $5 million
"It's a matter of fairness to all those millions of residents who actually live here," said Hochul at a news conference near the nexus of luxury New York real estate dubbed Billionaires' Row. "Those who benefit from the city without living in a full-time capacity should contribute to the costs that it takes to run the city."
The proposal injects a new twist into a long-running and heated debate over taxes and wealth in one of the world's most expensive cities.
It's also a sign Hochul and Mamdani are coming into at least partial alignment after the governor rejected many of his earlier ideas for taxing the wealthy. For New York's richest residents, however, the plan presents the prospect of another unwelcome battle with politicians who are trying to show lower- and middle-income voters that they are taking concerns about the rising cost of living seriously.
Billionaire hedge fund manager Daniel Loeb took to his X account, where his avatar is an image from classic New York rap duo Eric B. & Rakim's album "Paid in Full," to howl that Hochul is "vying for Florida Realtor of the year."
Wealth-tax wave
Mamdani has argued that the city's deficit should be closed by raising income-tax rates for people earning more than $1 million a year and corporations. A surcharge on pricey secondary residences could achieve Mamdani's objective of raising taxes on the affluent without burdening a large share of voters in New York's November gubernatorial election, where Hochul is running for another term.
While the measure will bring in much needed cash for the city budget, some progressives say it doesn't go far enough. "$500 million is good but it's not all," said State Senator Jabari Brisport, a democratic socialist and ally of Mamdani. Brisport said he supports the pied-a-terre tax but also wants a broader slate of tax proposals.
"A fair number of us believe that the corporate tax increase is the right way to go, given record corporate profits," said State Senator John Liu, who represents Northeast Queens. Senate Democrats have sought to raise the top rate on businesses to 9% from 7.25%.
For Hochul, the political logic of rejecting income-tax hikes in favor of a pied-a-terre levy is clear.
"You get away from the fear that billionaires are going to flee," said Lupe Todd-Medina, who runs Effective Media Strategies, a Democratic consulting firm. "They don't live here year-round. They're probably not registered to vote for her. She's taxing the rich with the least amount of pain for all New Yorkers."
A growing number of Democratic-led states, including Massachusetts, California and Washington, have adopted or are considering increased taxes on high earners and their assets. The aim, generally, is to replenish local coffers and make up for federal cuts without asking stretched working-class voters to shoulder more of the burden.
Todd-Medina said the
Mamdani heralded Hochul's plan as "good news" and accused ultra-wealthy people of using second homes in the city to capitalize on New York's real estate market without contributing "in the way that they should." He called out Citadel founder Ken Griffin's purchase of a penthouse apartment on Central Park South for $238 million in 2019, which set a U.S. record at the time.
"This is the kind of wealth that is being stored in this city, and it is a residence that is so often empty," Mamdani said.
Griffin's purchase prompted a prior but ultimately unsuccessful push to pass a second-homes tax in 2019. The proposal was scuttled amid concerns from the real estate industry and questions over how a charge would be calculated and applied.
Special affinity
The world's wealthiest people have a special affinity for New York, both as a place to do business and for its famous scenes of fashion, art and other culture. Hochul's proposal would further put that relationship to the test after several high-net-worth departures from the city in the wake of the pandemic.
Rich New York City residents already face the highest local income taxes in the U.S., with a top city and state rate of almost 15% on incomes of at least $25 million. Many globe-trotting billionaires avoid those levies by establishing residency elsewhere — but still return to New York frequently.
Hodgson Russ partner Timothy Noonan, an attorney specializing in residency, has helped a number of wealthy individuals officially move away in recent years. At the same time, "many of my clients keep an apartment in New York City for use on visits back," he said.
Noonan expects a pied-a-terre tax to prompt many to think twice about their Manhattan crash pads, especially if Hochul's plan resembles the 2019 proposal, which would have imposed a top annual rate of 4% on a home's value.
"That will definitely cause even the wealthiest of taxpayers to consider other options," he said.
Hochul has been wary of further eroding the state's tax base. More than 44% of New York state's income-tax revenue in 2024 came from the 99,000 filers who reported incomes above $1 million, out of nearly 11 million tax returns filed that year, according to the state's Department of Taxation and Finance.
Economists Gabriel Zucman and Joseph Stiglitz disputed the notion that higher levies would spur wealthy residents to move away. At an event with Mamdani on Wednesday, in front of a banner that read "TAX THE RICH," they called tax migration a "myth."
"Perhaps New York can afford to lose a couple of millionaires," Zucman said, but it "really cannot afford to lose its working class."
