Mamdani’s Tax Proposals Are All Wrong for New York State

New York City Mayor Zohran Mamdani has proposed to raise city taxes by some $7 billion. But before he can accomplish that, lawmakers in Albany must sign off.

They should decline to do so. The revenue benefits would flow exclusively to New York City, while the whole state would shoulder the costs—including suffering a blow to economic productivity and further erosion of the Empire State’s already crumbling tax base.

Applying some of the best research on tax elasticities, a $7 billion increase in New York City taxes would likely reduce gross state product by over $17 billion. That would cost the state about $2 billion in tax revenue—roughly $1.3 billion in personal income tax collections, $475 million in sales and excise taxes, and $185 million in corporate franchise taxes.

That lost revenue is significant. It is almost double the amount that would be raised by the New York State Senate’s proposed 0.5 percentage-point tax increase on high earners. Alternately, it amounts to two-thirds of the projected revenue gain under an Assembly budget proposal that would raise rates across multiple high-earner brackets, yielding a new top state rate of 12 percent.

The problems don’t end with revenues. Higher taxes reduce returns on investment, slowing growth. They also drive some taxpayers and business activity out of the state entirely.

Pushing more New Yorkers to flee for lower-tax jurisdictions would be particularly foolhardy now, given the state’s longstanding outmigration problem—one compounded by the post-pandemic era’s greater mobility. New York City’s population has declined by about 200,000 since 2020. Statewide, the population has been essentially flat, declining from 20.1 million to 20.0 million since 2020.

Outmigration has already damaged New York’s tax base. Over the most recent decade for which Internal Revenue Service data are available (2014–2023), New York lost an aggregate adjusted gross income (AGI) of $146 billion in today’s dollars—14 percent of New York’s current total.

“Our tax base has been eroded,” Governor Kathy Hochul admitted recently, half-jokingly suggesting that high net-worth New Yorkers who want to help out should “go down to Palm Beach and see who you can bring back home.”

Much of that wealth has flowed to New Jersey, with almost $23 billion in net AGI migrating to the Garden State over the past decade. Not that New Jersey is doing so well: even with the influx from New York, it has lost more than 350,000 residents and $41 billion to net outmigration over the past decade. But for some taxpayers, at least, New Jersey is marginally better than New York while being close to home.

The New Jersey exodus poses a big problem for New York City, since the city can tax only resident income. New York State’s “convenience of employer” rule allows Albany to continue to collect income taxes as long as the person’s principal office remains in New York. However, if the employer changes the worker’s principal office to New Jersey or elsewhere, then the state could lose much of that tax base, too.

Moves farther afield—to states like Florida, Texas, and North Carolina—are already growing more common. Between 2014 and 2023, New York lost 1.8 million people to net out-migration, including a net loss of 632,000 residents just to those three states. Almost $49 billion in New York’s net AGI flowed to Florida alone. Allowing New York City to hike its taxes will only accelerate this outflow, while reducing the economic competitiveness of those who remain.

If lawmakers in Albany sign off on Mamdani’s plan, they will share the economic consequences without enjoying any of the revenue benefits. And they will merely delay the necessary work of getting the city’s finances under control. That’s a bad bargain all around.

Photo by Michael M. Santiago/Getty Images