At a hearing in Albany last week, New York City Mayor Zohran Mamdani lobbied state lawmakers to help him balance the city’s finances with a two-percentage-point hike in the city’s income tax on people making over $1 million.
His pitch included a striking but inaccurate claim – that the targeted taxpayers had recently received a windfall from Washington.
“Someone earning a million dollars a year can afford to contribute $20,000 more,” Mamdani said in his prepared testimony. “Especially when we know that, according to a report by the Fiscal Policy Institute, President Trump’s One Big Beautiful Bill Act delivers a collective $12 billion A YEAR in federal tax cuts to New Yorkers earning over $1 million—an annual savings of $129,600 per millionaire.” (Emphasis added.)
This statistic is not just exaggerated, but directionally wrong. The Trump-supported tax changes originally enacted in 2017, which were extended last year, have resulted in a higher average tax hit for New York’s millionaires, not a lower one.
That’s because the 2017 bill, known as the Tax Cuts and Jobs Act or TCJA, coupled lower tax rates with other changes, including – crucially for New York – a limit on the deductibility of state and local taxes, known as the SALT cap.
Previously, most federal taxpayers could fully deduct what they paid in taxes at the state and local level. For residents of New York and other high-tax states, this had amounted to a substantial discount on what they owed to Washington. After 2017, however, that deduction was capped at $5,000 for individuals and $10,000 for married couples filing jointly – wiping out most of the discount for those with larger incomes.
The net impact of the TCJA’s various changes can be seen in IRS data showing the aggregate incomes and tax liabilities of various income groups, including those with adjusted gross incomes of $1 million or more (see chart).
For millionaires nationwide, the average share of income paid in federal taxes dropped after the TCJA took effect, from 27.9 percent in 2017 to 26.8 percent in 2018.
But for New York’s millionaires, the average federal tax bite increased, from 27.8 percent to 28.1 percent. Their average effective tax rate also went from being lower than average to higher than average. Both shifts likely reflect the fallout from the SALT cap.
In 2021, state lawmakers tried to mitigate the effects of the SALT cap by establishing a “pass-through entity tax,” or PTET. For eligible filers, the PTET redefined a portion of their state liability as a business tax, which was fully deductible at the federal level, rather than a state income tax, for which federal deductibility was capped. However, this workaround is not feasible for all filers and does not apply to most income from capital gains.
Despite the introduction of the PTET, IRS data for 2022 (the most recent year available) show that the aggregate effective tax rate for New York’s millionaires remained eight-tenths of a point higher than it was in 2017, while the nationwide rate was eight-tenths of a point lower than in 2017.
In aggregate nationally, millionaires paid $21 billion less in 2022 than they would have paid at the 2017 rate, an average savings of $26,000 per filer.
In New York, millionaires paid almost $2 billion more in federal taxes for 2022 than they would have paid at the effective rate in 2017 – an average of almost $30,000 per filer.
Last summer’s federal budget legislation temporarily raised the cap on SALT deductions to $20,000 for individuals and $40,000 for married couples, a provision due to expire after 2029. That change will result in savings for many New York filers, but likely not enough to produce a net aggregate savings for state’s millionaires compared to the pre-TCJA tax code.
Mamdani’s claim – that millionaires are reaping $12 billion annually due to the Trump tax cuts – came from an analysis by the Fiscal Policy Institute.
That analysis based its savings estimate on three factors: $6.5 billion due to lowered income tax rates, $1.6 billion due to federal authorization for the PTET deduction, and $3.8 billion attributed to the indirect benefits of corporate tax cuts. It should be noted that these were not new policies, but pre-existing laws that were kept in place by last summer’s legislation.
The analysis did not reference the impact of the SALT cap.
As discussed above, the IRS data show that New York’s millionaires are paying more in taxes, not less, despite the lower rates and PTET dedication cited by the Fiscal Policy Institute. How much benefit, if any, they realized from corporate tax cuts is not clear from the IRS data.
The practical effects of federal tax policy should be top of mind for Mayor Mamdani. As Empire Center founder E.J. McMahon said in testimony to state lawmakers in 2020:
The game-changing importance of the SALT cap cannot be over-emphasized. For the
highest earners, deductibility effectively vanished with the enactment of the new
federal tax law. Prior to 2018, every dollar in added state and local income taxes was
effectively discounted by about 40 percent. Now, however, every added dollar in state
income tax costs a full, non-deductible 100 cents. The net cost of state and local taxes
has risen steeply for the highest earners, and so has their incentive to reconsider living,
working and investing in New York.
Mamdani presides over a city that collects 40 percent of its income tax revenue from just 1 percent of its population. As a result of the SALT cap, those high-income residents are paying a sharply higher price for living and working in New York City, which has the highest combined state-and-local income tax rate in the U.S.
The number of millionaires has been growing nationwide, but – as McMahon has documented since 2014 – New York’s share of that population has been declining. It fell from 12.7 percent of the U.S. total in 2010 to 8.7 percent in 2022, by far the largest percentage-point drop of any state, and the SALT cap might well exacerbate that trend.
As Mamdani argues for increasing the tax burden on his city’s highest-income residents, he should keep his facts straight about how much they’re already paying.
