New York City’s New Billionaire Tax: What It Means
There’s been quite a bit of chatter around New York City’s recent billionaire tax, especially from big names like Bill Ackman. The CEO of Pershing Square Capital Management made waves with a post on X (formerly Twitter), expressing concern that wealthy New Yorkers might head for the exits following Zoran Mamdani’s unexpected win in the mayoral primary. He commented about a pressing danger, implying that life in the city could become economically unmanageable under Mamdani’s leadership.
Ackman’s tweet gained traction, with over four million views. It was a direct reaction to the 33-year-old Democrat’s significant support, where he snagged 44% of the votes by advocating for a progressive agenda that aims to ease the financial burden on city residents.
Mamdani’s Tax Strategy
Mamdani’s plan is ambitious. He aims to fund initiatives without burdening the middle class. His proposal includes increasing corporate taxes and adding a 2% tax for the wealthiest New Yorkers—those earning over $1 million annually. This “billionaire tax” is projected to generate around $4 billion each year, which would help finance projects like free early childcare, free bus rides, and affordable housing options.
Considering it affects roughly 34,000 high-income households, Mamdani emphasizes this group contributes about 35% of all income earned by city residents. He argues that this top 1% benefited from tax cuts under the Trump administration’s 2017 Tax Cuts and Jobs Act.
The proposed surtax, meant for those earning above $1 million, is seen as a way to make tax contributions in New York more progressive. In a progressive arrangement, higher earners pay a higher rate on their additional earnings, while everyone pays the same rate on their initial income up to certain brackets.
Right now, New York’s income tax rates range from 4% to 10.9% for 2024. However, Mamdani believes that the city’s tax structure effectively utilizes a flat rate of 3.9%. “Whether you make $50,000 or $5 million,” he states, “the rate’s practically the same.” Although the tax percentages have seen slight increases over the years, he teases that it doesn’t fully capture the idea behind progressive taxation.
A Look at Effectiveness
Mamdani points to Massachusetts for examples of successful implementation. In November 2022, the state voters approved a 4% surtax on personal income over $1 million, which raised $1.8 billion within the first three quarters of its rollout, funding school lunches and transportation efforts.
Initially, there were concerns about the exit of wealthy residents. In 2021, Massachusetts saw some folks leave, but they were mostly middle-income earners, not millionaires. Historical data supports this—people across various income levels have been leaving since 2009, particularly among middle to high earners. Factors like job flexibility and affordable housing in other states likely influenced these decisions more than taxes.
Interestingly, data indicates that the number of tax returns in Massachusetts reporting over $1 million in income rose by 36% from 2018 to 2022. Moreover, the number of billionaires in the state increased by 38.6%, along with a rise in their overall wealth.
This apparent success has inspired other states to consider similar measures. For instance, a new bill in Illinois proposes an extra 3% tax over $1 million for a vote in November 2024. Maryland’s Governor, Wes Moore, is also looking at a 6.5% tax hike for top earners. Meanwhile, Hawaii is weighing a 1% wealth tax on assets surpassing $20 million.
Even tax-free states are making adjustments. In 2022, Washington started taxing capital gains above $250,000, and a new surtax on incomes exceeding $1 million is set to begin in 2025.
Washington’s tax discussions have drawn the spotlight on its wealthiest citizens, including Jeff Bezos of Amazon. Yet, despite the new tax implications, Bezos continues to rank high on the billionaires list, suggesting that high earners often have the resources to manage or mitigate these costs through planning.
This scenario reminds us that not all states enthusiastically embrace stronger taxes. North Carolina shifted from a graduated income tax model back in 2013, and California voters blocked a billionaire tax proposal in 2022, largely due to fears concerning taxpayer retention.
The Future of Mamdani’s Tax Plans
Will Mamdani’s billionaire tax come to fruition? It’s uncertain. Despite his optimism and backing from supporters, decisions about city income tax rates ultimately rest with the state. Governor Kathy Hochul would need to approve any such bill passed through the legislature. Recently, Hochul voiced her opposition, expressing concerns about further losses to states with more appealing tax rates.
However, Mamdani remains hopeful, asserting that New Yorkers are advocating for a city where they can truly thrive, rather than merely survive. Looking ahead, he now faces a challenge from Republican Curtis Sliwa and current Mayor Eric Adams, with the general election set for November. Interestingly, Ackman has even hinted at funding a potential challenger.
