As New York’s budget battles wage, legislators are embracing the call to “tax the rich” — a slightly less carnivorous version of Jean-Jacques Rousseau’s famous saying, “eat the rich.” This tax hike aims to fill the latest budget gaps, and fund much needed public services without adding to costs for everyday renters and homeowners.
New York City Mayor Zohran Kwame Mamdani pushed the discussion forward on the topic of a wealth tax in February with his preliminary city budget proposal, a campaign promise that drew a lot of spectacle last year. He is hardly the first mayor in the state’s history to suggest taxing high earners more though. In 1919, New York first adopted a personal income tax (PIT) of 3% on incomes above $50,000, which is about $1 million in today’s terms, according tothe Manhattan Institute.
What’s in the Mayor’s proposal?
His proposal aims to fill the city’s current $5.4 billion budget gap with a 2% raise on income taxes on residents earning more than $1 million a year and on corporate taxes on the most profitable corporations. This could generate an estimated $3 billion a year, if it got approved. As a controversial back-up plan, Mamdani said that the city might have to institute a 9.5% raise on property taxes on the average resident making a median income of $122,000, among other things. Potentially, this would generate between $3.6 and 3.8 billion a year.
For context, the median adjusted gross income (AGI) for most NYC tax filers was $42,749, and more than 90% of filers earned less than $170,000 in 2023, according to the Independent Budget Office (IBO).
The PIT is it
First, wealthy people across the country got about $12 billion annually in federal income tax cuts from the Trump administration last year. Because of this, moderate and more progressive political organizers, like DREAM for NYC, are hugely in favor of raising taxes on the rich. So much so that they installed a billboard on the side of the highway in Albany that reads, “Hey Hochul, Zohran says tax the rich,” in giant letters.
“People don’t really believe that if you give rich people tax cuts that eventually it will get down to them. People don’t believe in ‘trickle down.’ People have seen it not work for decades now,” said Rita Jefferson, who is a local tax analyst with the Institute on Taxation and Economic Policy (ITEP), a nonpartisan group focused on tax equity.
Other states, like Massachusetts, already have a “millionaire tax” to raise revenue, address budget shortfalls, and fund critical infrastructure like public education and transportation. And according to recent IBO numbers, personal income taxes are New York City’s second-highest tax revenue source. Jefferson concurs that the best option is to raise PIT taxes on millionaires.
“If the city actually needs money to spend on city services,” said Jefferson, “raising money from the wealthiest people who, again, got a giant tax cut last year, would be the most straightforward way to do it that would affect low-income New Yorkers, obviously, the least.”
We’d like property tax reforms, actually
Homeownership is the main avenue for wealth building, and particularly for African Americans, it is frequently the only source of wealth that a lot of people have, said Jefferson. The racial implications of raising property taxes in a housing market that has changed substantially over the past 50 years, and now has higher property values in many predominantly Black and Brown neighborhoods, could be dire. Jefferson said that the vast majority of people of color in the city live in multifamily apartment buildings, which are taxed at a higher rate than single-family homeowners.
“You end up with this wacky system in which there are lots and lots of Black residents in New York who are paying a higher effective tax rate, which is basically the actual percentage it takes out of their income, than a lot of white residents of the city,” she said.
Not to mention a raise in property taxes will likely put even more Black and Brown New Yorkers at risk of losing their properties because of the city’s inequitable tax lien sale process, said Jefferson.
James Parrott, a senior advisor at The New School’s Center for New York City Affairs, was on the city’s advisory commission for property tax reform in 2018 and released its final recommendations in 2021. “It’s a huge source of inequities. It’s hard to justify, and it just takes significant political will to remedy that, but it can be fixed,” said Parrott.
Parrott truly doesn’t believe Mamdani intends to raise property taxes at all, but in any case thinks a wealth tax is a fairer option to balance the budget. He said in the long-run, taxing the rich would help the city and state become more affordable as well. However, his major sticking point is overhauling the property tax system to help both financially burdened tenants and homeowners.
What about spending less money?
Even more unpopular than a tax raise are budget cuts.
“In this case, there is no good tax policy that would balance the budget. Spending has to be brought under control,” said Abir Mandal, a senior policy analyst at the Tax Foundation think tank. He said city revenues are increasing, but the city has a real spending problem that ballooned during COVID.
Back in 2018, the city budget was about $87 billion. Now it’s an estimated $127 billion for the next fiscal year. The IBO confirmed that during the pandemic in 2020, the city got billions in federal aid, which was a big influx of money that was not coming from city tax expenditures. There was an expanded budget and spending during the influx of migrants and asylum seekers to the city in the years that followed. In general, the skyrocketing costs of inflation and unfunded state mandates encourage city spending, said the IBO.
The state legislature is all in
Still, the scare tactic of raising property taxes during a trying affordability crisis and looming federal budget cuts already lit a fire under Mamdani’s former colleagues in state government.
In March, the state Senate and Assembly proposed their own one-house budget resolution that included a wealth tax similar to Mamdani’s. This would allow New York City to raise taxes on corporations and unincorporated businesses with incomes of $5 million or more by 0.4%, increase the tax rates on financial sector firms by 1.8%, and raise PIT taxes on those earning over $5 million and over $25 million by 0.5%.
“As Washington continues to cut essential programs New Yorkers rely on, our one-house budget aims to strengthen funding to support the well-being of New York’s working families and invest in local economies across our state,” said Senate Majority Leader Andrea Stewart-Cousins in a statement. “We are advancing a fiscally responsible budget that seeks to protect access to affordable healthcare coverage, get us closer to universal childcare, support small businesses, continue our climate goals, and strengthen overall investments to ensure the continued vibrancy and resiliency of our state’s diverse communities.”
Mamdani seems eager to see the wealth tax gain real traction again.
“And I will just say that I’m incredibly heartened — we have a number of state legislators here who are fresh off of voting for one-house budgets, and those are budgets that put forward $5 billion in commitments in a mixture of new revenue and a change in the cost-sharing towards the city,” said Mamdani at a press conference at the Brooklyn Community Pride Center on March 13. “That is the very kind of partnership that could put our city back on the firm financial footing that’s required.”
To the notion of “millionaire flight,” meaning that rich people will leave if they’re taxed too much, both Jefferson and Parrott scoffed. The Center of Budget and Policy Priorities studies found that in other states the tax levels have little effect on whether and where people move.
Although New York’s full year resident earners, in the $1 to $2 millionaire range, have shrunk between 2015 and 2022 relative to national totals, reported the Manhattan Institute. Jefferson added that the city has certainly had millionaires that commit “egregious” tax evasion by skirting the city’s residency laws.
With the clock ticking and federal COVID funding drying up, the final state budget deadline on April 1 is fast approaching. Governor Kathy Hochul, who is running for re-election this November, isn’t totally on board yet. “What I want to make sure [is that] we are smart about is having a system in place where it’s not just taxing for the sake of taxing,” Hochul said at a March 12 Politico panel.