New Year, New Taxes?
State employees in New York are set to face higher taxes as funding for a large universal child care initiative is on the horizon, championed by the newly elected Mayor Zoran Mamdani and Governor Kathy Hochul. A recent study indicates a substantial fiscal challenge ahead.
The Fiscal Policy Institute, a progressive think tank, found that relying solely on increased taxes from corporations and billionaires would fall short of covering the projected $8 billion annual cost associated with the statewide child care program.
The report suggests that additional income streams, possibly via payroll tax hikes, would be necessary to meet the funding requirements for child care services for children over six months old.
According to the Fiscal Policy Institute, “It is economically and fiscally unrealistic to expect that only the wealthiest New Yorkers can pay for the entire $8 billion in statewide child care costs.”
Mamdani, a self-described socialist, plans to prioritize “free” child care for children ranging from six weeks to five years old in his inaugural year, taking office shortly after midnight on January 1.
He also intends to push forward with other ambitious campaign promises. These include establishing city-run grocery stores, offering free public transport, and imposing a rent freeze. Collectively, these initiatives are estimated to cost more than $10 billion.
To finance the $6 billion child care initiative, Mamdani proposes upping taxes on businesses and New York’s wealthiest residents, which could potentially yield $9 billion.
However, the leader of a prominent business advocacy group argues that taxes are already excessively high. Instead, they believe that officials in both City Hall and Albany should look into cutting expenditures to handle child care funding.
Raising taxes on nearly all income levels may worsen the affordability crisis—a significant concern for both Mamdani and Hochul, especially with Hochul facing re-election next year.
“Providing families with free child care is a great concept, but we first need to find revenue through budget cuts that can reallocate city and state resources for such essential services,” remarked Kathryn Wilde, CEO of the New York City Partnership.
The Fiscal Policy Institute has suggested implementing a new 0.43% child care payroll tax impacting salaried workers making above $25,000 annually, which they estimate could generate around $3.6 billion.
Support for this taxation approach is anticipated from affluent individuals and major corporations alike.
According to the FPI report, a 25% surcharge on corporate taxes could raise $2.2 billion, a 1% increase in income tax for earnings over $1 million would potentially net $1.5 billion, and a 0.43% tax on investments could contribute another $700 million.
The proposal, as detailed by FPI authors Nathan Gusdorf and Andrew Perry, draws from the payroll transfer tax approved last year to finance the Metropolitan Transportation Authority.
It’s worth noting that New York state already collects payroll taxes to raise around $1 billion annually for its paid family leave program.
The FPI’s plan suggests broadening this tax to encompass universal child care, eliminating the existing income cap of $93,500, while exempting those earning under $25,000 and halving the rate for those between $25,000 and $50,000.
The group contends that a modest payroll tax is a fair solution, given that many parents stand to gain significantly from subsidized child care.
“For most people, it would be reasonable to contribute a small annual tax to sustain universal child care, especially to avoid hefty tuition increases when child care is most needed,” said FPI representatives.
New York City currently offers better early childhood education and child care options compared to other regions, with preschool programs starting as young as three and four years old.
Hochul, who is also gearing up for re-election in 2026, plans to unveil further details regarding the Universal Child Plan in her upcoming “State of the Union Address” on January 13.
A spokesperson mentioned, “Governor Hochul remains dedicated to making New York not only the best but also the most affordable place for families.”
Wilde has expressed skepticism about the political feasibility of a payroll tax across nearly all income brackets, predicting it could be politically unpalatable.
“It seems fair in theory, yet it disregards the political dynamics where people often support tax increases that don’t directly affect them, making me think this approach might falter,” she noted regarding the FPI proposal.
Wilde further elaborated that high-income earners in New York City and its suburbs already shoulder a disproportional tax burden, with over half of their income going to taxes, suggesting that this is an unsustainable situation, particularly seen in the state’s dwindling percentage of billionaires.
