New York City skyline representing the potential changes in business taxes affecting local firms
President Trump’s proposed spending bill includes a provision that may significantly increase tax obligations for New York’s top-earning firms, potentially costing them billions annually. The elimination of pass-through entity taxes (PTET) has raised concerns about a potential business exodus from the state, putting pressure on New York’s economic landscape. Experts warn that the changes could particularly affect small businesses, as legislative changes further complicate the state’s tax climate amidst rising operational costs.
New York City – A provision included in President Trump’s spending bill may significantly impact the tax obligations of New York’s highest-earning firms, potentially forcing them to pay billions of dollars more annually. The proposed changes are raising concerns about a potential exodus of businesses from the state as they grapple with increased tax burdens.
The controversial provision seeks to eliminate current workarounds to the SALT (State and Local Tax) cap, particularly impacting pass-through entity taxes (PTET). Currently, PTET offers about $16 billion in personal income tax deductions for New York-based service businesses, including professional sectors such as law and healthcare. This deduction allows businesses structured as pass-through entities to pass their tax obligations onto individual owners, minimizing their tax liabilities.
Under the new spending bill, the SALT deduction cap for individuals earning less than $431,000 would increase from $10,000 to $30,000. Despite this increase, experts warn that limiting PTET could increase tax rates for top-earning firms by as much as six percentage points. Since many of New York’s top firms do not qualify for the newly proposed SALT cap, these changes could disproportionately threaten high-income earners who are crucial to the city’s tax revenue.
Industry experts are concerned that the loss of PTET could become a tipping point for firms considering moving out of New York. The change may particularly harm smaller businesses that rely on PTET, as they often lack the resources to relocate. The elimination of PTET could also negatively impact New York City’s unincorporated business tax, compounding the financial pressure on local enterprises.
As Trump’s administration pushes for support of the spending bill among GOP lawmakers, the Association of International Certified Professional Accountants is urging its members to voice their opposition to ending PTET. The combination of increased taxes and regulatory changes is prompting fears of a wider business fallout in one of the nation’s largest economic hubs.
Concerns about an impending business exodus are not unfounded. Between 2018 and 2022, over 125,000 New York City residents relocated to Florida, taking with them approximately $14 billion in income. Additionally, around 160 Wall Street firms managing nearly $1 trillion in assets have relocated outside of New York since late 2019. These trends reflect a growing dissatisfaction with the state’s tax climate and overall cost of living.
In tandem with the federal changes, Governor Kathy Hochul’s proposed budget plan aims to increase payroll taxes to fund the Metropolitan Transportation Authority’s capital projects. The planned payroll tax hike would raise rates from 0.6% to 0.895% for large businesses in New York City and from 0.34% to 0.635% for businesses outside the city. This proposed increase could affect between 5,000 and 10,000 New York companies, further adding to the state’s financial complexities.
In the wake of efforts to address the state’s budget deficit, which were notably influenced by the 2017 Tax Cuts and Jobs Act that capped SALT deductions, businesses are expressing concerns about the sustainability of their operational costs amid rising taxes. High earners are increasingly likely to migrate away due to taxes and escalated living costs, which poses a continuing threat to New York’s overall economic health.
A recent report revealed that approximately 352,000 New Yorkers moved out of the state in 2022 primarily due to affordability challenges. Despite this, New York continues to attract newcomers, including higher-income individuals from other states, demonstrating a complex demographic dynamic.
Employers are cautious, forecasting potential cuts to raises and hiring in light of increasing tax burdens. While census data shows that New York’s population is slowly recovering from pandemic-related declines, the state’s economic landscape remains precarious with ongoing discussions surrounding tax implications and business sustainability.
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