Let me say at the outset that I am not someone who reflexively opposes new revenue. New York has real needs. The subway needs investment. Schools in low-income districts need resources. I have supported targeted tax increases before and I will again when the situation warrants.
What I cannot support is the latest proposal from some lawmakers in New York and Albany to tax small businesses twice on the same dollar.
Buried inside the budget proposals circulating in Albany right now is a change to how the pass-through entity tax (PTET) credit works. If you haven’t heard of it, you’re not alone. The PTET credit is not the kind of policy that generates many constituent phone calls. But it is the kind of policy that could get snuck into a budget without anyone quite realizing the consequences.
Here is what it actually means. When the Trump administration passed the 2017 Tax Cuts and Jobs Act, it capped the deduction that residents of high-tax states could take for their state and local tax payments. For New Yorkers — people who already pay some of the highest state and city taxes in the country — this was a gut punch. Democrats, myself included, spent years pointing out that this was an unfair policy that disproportionately hurt states like ours. We were right. We fought it. We eventually made progress on restoring those deductions.
Now the Senate budget proposes to reduce the PTET credit to ninety cents for every dollar paid. The Assembly is considering changes to New York City’s version. The end result is structurally identical to what we spent years condemning: income that has already been taxed at the entity level gets taxed again at the personal level, because the credit that was supposed to offset it has been quietly shaved down.
The proponents of this change will tell you it’s progressive, that it’s all about hedge fund managers. What they won’t tell you is that this tax increase will also hit the pediatric dentist in Binghamton, the physical therapy practice in Bay Ridge, the small accounting firm in Syracuse that does the taxes for half the businesses on its block. These are not hedge fund operators. They are the people who quietly serve their communities.
For a practice earning a few million dollars in gross revenue — which sounds like a lot until you account for staff salaries, equipment, insurance, and overhead — a 10 percent reduction in the PTET credit translates to tens of thousands of dollars in additional annual tax liability. That money comes out of somewhere. It comes out of hiring. It comes out of equipment upgrades. It comes out of the salary line for the front desk worker who grew up in the same neighborhood as the patients they serve.
We have a genuine budget challenge in New York. The Governor’s office is under real pressure, particularly from New York City, which is facing its own fiscal difficulties. I understand the impulse to find revenue wherever it can be found. But the right answer is not to reach into the pockets of small business owners through a mechanism obscure enough that most of them won’t understand what happened until they get their tax bills.
I believe the government can be a force for fairness. Taxing people twice on the same dollar is not fair, and dressing it up in technical language does not make it so. When the Trump administration structured the SALT cap the way it did in 2017, we called it what it was: a politically-driven policy designed to squeeze taxpayers in Democratic-leaning states. We organized around it. We made it a cause. Some lawmakers built entire legislative careers on reversing it.
So what do we say now to the New Yorker who asks why we’re doing the same thing ourselves — not because a hostile federal government forced our hand, but because we chose to? There is no clean answer to that question. If the principle was worth fighting for then, it is worth honoring now. Albany can do better than this
