Key Takeaways
- • New York City officials Zohran Mamdani and Julie Menin are pressuring Governor Kathy Hochul to reduce the Pass-Through Entity Tax (PTET) credit from 100% to 75%, targeting approximately $1 billion in annual revenue to help close the city's $5.4 billion budget gap.
- • The PTET credit, enacted in 2021 under former Governor Andrew Cuomo, disproportionately benefits wealthy hedge fund and private equity owners, with 95% of benefits flowing to earners above $1 million annually and over 80% to those earning above $5 million.
- • Multiple states have already implemented partial caps on similar credits: Connecticut caps its version at 87.5% and Massachusetts at 90%, establishing precedent for the proposed 75% reduction in New York.
- • A coalition of labor unions representing over 300,000 workers statewide has formally urged Hochul to support tax measures targeting high-income earners, while both houses of the State Legislature included comparable proposals in their one-house budget submissions.
- • Governor Hochul has previously stated she is "done raising taxes" this session, creating a significant political obstacle to the proposed measure ahead of the April 1 budget deadline.
Summary
New York City's political leadership is mounting a direct challenge to Governor Kathy Hochul over a state tax credit that predominantly benefits hedge fund and private equity partnerships. City Council Speaker Julie Menin and Mayor Zohran Mamdani characterized the Pass-Through Entity Tax (PTET) credit as a "hedge fund handout," arguing it represents misallocated public resources during a fiscal crisis.
The PTET credit, signed into law in 2021 following the Trump administration's 2017 federal tax changes that capped state and local tax deductions at $10,000, allows wealthy owners of pass-through business entities to reduce their personal federal tax liabilities while receiving full state reimbursement. According to the mayor's office, the credit's distribution is heavily skewed toward high earners: 95% of benefits accrue to individuals earning above $1 million annually, with more than 80% flowing to those earning above $5 million. Mamdani and Menin are specifically calling for a reduction of the credit from 100% to 75%, which they contend would generate roughly $1 billion annually.
The proposal reflects a broader political movement toward revenue recovery. A coalition of labor unions representing more than 300,000 workers statewide—including DC37, NYSNA, the Hotel and Gaming Trades Council, and PSC/CUNY—formally urged Hochul to prioritize taxation of high-income earners. Additionally, both the New York State Assembly and Senate included comparable tax measures targeting wealthy earners in their one-house budget proposals, signaling legislative support for the concept.
Precedent exists in neighboring states. Connecticut has capped its equivalent credit at 87.5%, while Massachusetts caps theirs at 90%, suggesting the proposed 75% reduction is within the range of comparable jurisdictions. However, Hochul's previous public statements that she is "done raising taxes" this session present a significant political barrier to implementation. With the state budget due April 1, the outcome remains uncertain as competing fiscal pressures and ideological positions continue to shape negotiations.
The PTET credit, signed into law in 2021 following the Trump administration's 2017 federal tax changes that capped state and local tax deductions at $10,000, allows wealthy owners of pass-through business entities to reduce their personal federal tax liabilities while receiving full state reimbursement. According to the mayor's office, the credit's distribution is heavily skewed toward high earners: 95% of benefits accrue to individuals earning above $1 million annually, with more than 80% flowing to those earning above $5 million. Mamdani and Menin are specifically calling for a reduction of the credit from 100% to 75%, which they contend would generate roughly $1 billion annually.
The proposal reflects a broader political movement toward revenue recovery. A coalition of labor unions representing more than 300,000 workers statewide—including DC37, NYSNA, the Hotel and Gaming Trades Council, and PSC/CUNY—formally urged Hochul to prioritize taxation of high-income earners. Additionally, both the New York State Assembly and Senate included comparable tax measures targeting wealthy earners in their one-house budget proposals, signaling legislative support for the concept.
Precedent exists in neighboring states. Connecticut has capped its equivalent credit at 87.5%, while Massachusetts caps theirs at 90%, suggesting the proposed 75% reduction is within the range of comparable jurisdictions. However, Hochul's previous public statements that she is "done raising taxes" this session present a significant political barrier to implementation. With the state budget due April 1, the outcome remains uncertain as competing fiscal pressures and ideological positions continue to shape negotiations.
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