Mayoral candidate Zohran Mamdani has proposed New York City tax increases of $9 billion to pay for free childcare for children under the age of 6, free bus fare for all, and opening city-owned and run grocery stores. His tax increases would raise the top New York City personal income tax rate by a little over 5 percent and the top New York City corporate income tax rate by around 45 percent.
If NYC implements the Mamdani-proposed tax increases, a wealthy NYC resident would face a total federal, state and city tax burden of a whopping 53.836 percent. For a corporation, the state and NYC tax burden alone would surpass a staggering 20 percent.
Wealthy taxpayers in the United States can and do move from high tax states to low tax states. In the five years through 2022, California lost personal income taxes of $5.3 billion from individual moves out of California. Corporations are no different. Both Tesla and Oracle left high-tax California for no-or low tax Texas.
Any wealthy individual or major corporation that moves out of NYC for tax reasons is almost 100 percent likely to move out of New York entirely. When that happens, both NYC and the state of New York lose tax revenues. And New York state cannot afford to lose tax revenues from individual and/or corporate exits.
Gov. Hochul has stated both that “I am a staunch capitalist” and “I’ve said I don’t want to raise income taxes on high-net-worth people.” Regardless, she has endorsed Mr. Mamdani for mayor of NYC despite his campaign focusing on raising NYC taxes.
Should Mr. Mamdani be elected mayor, Hochul will be faced with the binary choice of signing or not signing a bill allowing NYC to raise billions in new taxes.
After the New York City Council and Mr. Mamdani, should he be elected as mayor, approve NYC tax increases, the statutory law of the state of New York will kick in. Before the NYC tax increases can become law and go into effect, they require the approval of the New York legislature followed by the governor's signature. State law prevents New York City from raising taxes on its own.
Virtually every NYC individual or corporate taxpayer that flees NYC will no longer be a New York state taxpayer. When a taxpayer moves from New York to Miami, that taxpayer is simultaneously fleeing both New York City and New York state.
New York state projects a $34.3 billion budget gap through June 2029. If the state legislature approves massive income tax increases for NYC, those increases will surely result in tax flight from New York state and a decrease in New York state revenues and a corresponding increase in the New York state’s budget gap.
The New York state legislature could increase state taxes to fill this greater budget gap, but this would increase overall taxes further and exacerbate the flight of taxpayers to low tax states.
The New York state legislature could offset New York City tax increases by simultaneously reducing the approximate $20 billion in New York state taxes that are allocated to NYC programs/agencies but that would be like rearranging the deck chairs on the NYC financial ship. NYC would have their tax increase in an amount equal to the reduction in amounts paid to NYC by the state.
Two hundred New York taxpayers pay 6.3 percent of total New York State income taxes (about $4.0 billion). The top 200,000 New York taxpayers paid almost exactly 50 percent of the state’s personal income tax in 2023. Just a small handful of the top 200 and/or a large handful of the top 200,000 taxpayers or a few of the largest corporations leaving NYC would cost New York state billions.
Many, if not most of these wealthiest NYC taxpayers already own an existing second home in Boca Raton or somewhere nearby. The private flight to New York to see a granddaughter’s dance recital would be a rounding error paid for many multiples of times over by their millions of dollars of tax savings from leaving New York.
Should a single one, more less a large handful of the largest New York City corporations leave New York City because of tax rates, thousands of jobs would follow. Again, this would reduce the tax revenue collections of the state of New York.
Should the governor hold fast to her commitment not to raise taxes of the wealthy and to protect the jobs of the largest corporations in New York, she will need to say no to New York City tax increases. And that will leave a very interesting decision for Mr. Mamdani when Hochul asks for his endorsement in her run for governor in 2026.