Several blue states are considering wealth taxes to close the budget holes worsened by President Donald Trump’s sweeping budget law. New York is not among them.
As Democratic legislators and governors in Minnesota and Washington back legislation that would lead to higher taxes on wealthy residents and capital gains in response to federal cuts to Medicaid and SNAP, Gov. Kathy Hochul says she is sticking to her promise to not raise taxes on wealthy New Yorkers.
Her decision highlights a major political dilemma for blue-state governors who will be facing major budget shortfalls due to Trump’s signature legislative item.
“In New York state alone, in the Bronx, in one county in New York City, the estimate is that over 60% of the population is dependent on Medicaid for medical services,” said Hank Sheinkopf, a Democratic strategist based in New York. “So if you cut, where does that get picked up? … There’ll be tremendous political consequences for elected officials who can’t fulfill those cuts.”
Fiscal experts have predicted the bill’s cuts to Medicaid coverage and other federal welfare programs could cost the state as much as $12 billion over the next two fiscal years, and even more after that.
Tax experts at The Brookings Institution’s nonpartisan Tax Policy Center suggested that one path forward for New York to increase that revenue would be an increase of 0.6 percentage points each on both personal income tax and the state’s sales tax.
Under that type of increase in New York, “a household with a median income of $80,000 would have to pay almost $400 more in yearly state income taxes and higher sales taxes on most goods,” the Tax Policy Center experts wrote in May, before the final budget law was passed.
Hochul is facing some opposition within her own party for her position against wealth taxes.
“I have been pretty consistently banging the drum for years, and I’ll get another drum and start drumming even harder that we need to raise taxes on the wealthy in the state of New York now,” state Sen. Gustavo Rivera, who represents a district in the Bronx — an area that is slated to be especially hard-hit by Medicaid and SNAP cuts — told NOTUS.
“I certainly understand that the cuts from the feds are so severe that we are not going to be able to make up everything,” he continued, adding that the state “can try to minimize the hits that are going to come” by shoring up tax revenue.
But it’s not the route Hochul is gaming out for New York. Instead, she told reporters on Thursday that state Budget Director Blake G. Washington is “scouring all of our agencies and finding how to deal with the $750 million shortfall created by the Trump administration,” but did not mention tax increases as an option.
And last week, Hochul told reporters that she wants to avoid tax hikes because “a lot of people leave our state because of the taxes,” adding that migration out of New York would leave the state without “the resources to be able to fund the generous safety net programs that I believe in.”
Hochul received expanded authority from state lawmakers to handle midyear state budget cuts in response to the federal budget law, positioning her as the main face of the state’s budgetary policy.
The political consequences could come from both sides of the aisle.
Some Republican legislators are applauding Hochul’s decision to avoid tax hikes. But other members of the GOP could shift the blame for dwindling social services to Hochul because she’s the figure who doles out federal cash to New Yorkers, making her an easy target for lawmakers looking to shift the blame from the Trump administration and Republican members of Congress, Sheinkopf said.
Democrats are also lining up to pressure the governor.
She’s already been criticized by some Democratic state legislators for her plan to move ahead with sending New Yorkers inflation rebate checks. Legislators have argued that she should cancel those payments and use the funds to fill federal funding gaps instead.
A group of progressives — including Lt. Gov. Antonio Delgado, who is seeking to unseat Hochul in the Democratic primary next year — rallied last week to push for a special legislative session so state lawmakers can address federal cuts now rather than waiting until January. Among their demands was a call for Hochul to raise taxes.
However, with leaders in the Legislature writing off a special session, the chance of tax increases is slim.
Instead, state agencies are evaluating the impacts of federal cuts on their individual budgets, a process that will wrap up by early September before state leaders convene to decide next steps, according to the governor’s office.
New York has also amassed record-high levels of budget reserves under Hochul, which could aid state leaders’ attempts to close budget gaps.
“As the Governor has made clear, no state can backfill the devastating cuts coming out of Washington,” Hochul spokesperson Emma Wallner said in a statement to NOTUS. “While Republicans strip away funding and hike costs, Governor Hochul is focused on putting money back in New Yorkers’ pockets and fighting for a more affordable state.”
Though she’s doubled down on her approach, Hochul herself has acknowledged the political risks.
The governor said during a state Financial Control Board meeting last week that the process of making up federal cuts will include “tough choices” and added that the state cannot promise the same level of funding to large areas like New York City going forward.
Meanwhile, progressives are promising that they’ll continue to speak out against Hochul’s approach.
“We should not explore cuts first,” Rivera said. “I think I’m in the right in this case. I think it’s not only the right thing to do, but the politically smart thing to do, and I will continue to make that case both publicly and privately.”
—
This story was produced as part of a partnership between NOTUS and The City.