The ongoing debate to increase taxes on wealthy New Yorkers could become a focal point of upcoming budget talks with more than $90 billion in federal aid to the state in jeopardy.
A federal funding freeze directed by President Donald Trump could leave the state in a fiscal lurch as New York lawmakers embark on the earliest stage of spending talks — rounding out Albany's second week of budget hearings.
Labor unions and progressive lawmakers this week started a familiar budget fight to increase taxes on the rich. They want New Yorkers making over $5 million to pay an extra half-percent in personal income taxes.
"It'll allow the state to have enough funding to provide all the public services that 20 million New Yorkers rely on every single day," NYS AFL-CIO President Mario Cilento said in the Capitol on Tuesday.
The labor leader said the extra funding would boost state revenue for education, child care, housing and maintain worker salaries.
Gov. Kathy Hochul wants this year's budget to make the state more affordable for low- and middle-income New Yorkers, but unpredictable support from Washington leaves the potential for higher taxes, and greater revenues, on the table.
"We see there's an outmigration of folks out of state, and it's not millionaires or billionaires, it's actually middle-class families, low-income people who are leaving the state," said Assemblywoman Michaelle Solages, who chairs the state's Black, Puerto Rican, Hispanic & Asian Legislative Caucus.
Hochul's budget renews higher taxes on millionaires through 2032 to close outyear spending gaps and allows higher tax rates for corporations with over $5 million in profits to expire next year.
Fiscal watchdogs with the nonpartisan Citizens Budget Commission disagree with the governor's plan, and want the state to restrain spending to 3% annual growth and allow the millionaire tax to sunset.
"When you're extending that, you're talking about $4 to $5 billion impacts per year whereas the corporate tax surcharges more a little over a billion dollars a year," said Patrick Orecki, the commission's director of state studies. "The state can still grow the budget, still increase spending in big areas that it wants to and become more economically competitive by letting those tax incrases expire as planned (after 2027)."
Hochul's tax proposal has state fiscal experts divided.
Economists with the Fiscal Policy Institute President Nathan Gusdorf maintains that the higher tax rate for New York millionaires should be permanent to build on the state's surplus and stronger tax revenues.
"If those are ever allowed to expire, that will mean that they come back and they have to take an ax to funding for public schools and funding for Medicaid," he said Thursday.
The state is vulnerable to a federal fiscal policy change — especially to Medicaid and health care spending, which make up the most expensive bulk of the budget. And the state could see declining funds for public transit, health care and more.
"The state really ought to be prepared to look for basically larger structural revenue replacements in the event that that federal funding disappears, because we really cannot afford to lose those programs," Gusdorf said.
Orecki argues the state should not rely on taxes to fill a potential federal funding gap.
"You have to be prepared and, of course, wary of what might happen in Washington, but preemptively changing spending or taxing policies to accommodate something no one knows anything about at this point would be premature," he said.
But both say Hochul's affordability initiatives, including a one-time inflation rebate check, will place a small amount in families' pockets that won't have its intended impact.
"The inflation rebate checks will go to nearly every taxpayer in the state that's a full-time resident, so it's not well-targeted," Orecki said.
Legislative leaders have backed a higher wealth tax in the past, but said this week it's too early in the budget process to know how much revenue the state needs. Legislative leaders will indicate how significant the tax fight will be this budget cycle with the release of each chamber's counter spending proposals in March.
Assembly Majority Leader Crystal Peoples-Stokes told Spectrum News 1 she's not opposed to higher taxes for millionaires and billionaires to close the income disparity between the ultra-wealthy and the poor.
"If we need to have more things for our people and we don't have the resources to do that with now, then we have to get it from somewhere," the Assembly leader said. "And if we have to raise the rate, the taxes on the wealthiest New Yorkers, I'll be all-in for that."
Senate Health Committee chair Gustavo Rivera said he'll fight to increase taxes on the wealthy to offset uncertainty in Washington.
"We need more revenue to be able to make up at least some of what the federal government is going to take away from us," he said earlier this week.
Opponents of a higher wealth tax fear it will drive people, and businesses, out of the state, which continues to lose population.