New York City Mayor Zohran Mamdani is seeking to reduce a widely used tax benefit for hedge funds, private equity firms and other high-income business partnerships as part of efforts to close a widening municipal budget gap.
The proposal targets the pass-through entity tax (PTET), a structure that allows certain business owners to offset federal limits on state and local tax deductions. Under current rules, participants receive a full credit for state and city taxes paid, a mechanism originally designed to mitigate the impact of the 2017 US federal tax overhaul.
Mamdani, alongside City Council Speaker Julie Menin, has urged state officials in Albany to reduce the credit from 100% to 75%. City officials estimate the change could generate close to $1bn in additional revenue, helping address a projected $5.4bn two-year deficit.
The plan would primarily affect owners of pass-through businesses—including those in finance, legal services, healthcare and retail—while leaving large corporations outside the scope of the change. However, implementation depends on approval from state lawmakers and Governor Kathy Hochul, who has indicated opposition, characterising the move as a form of personal tax increase.
The PTET regime has already been modified differently across US states, with jurisdictions such as Massachusetts and Connecticut applying partial credit systems that retain a portion of revenue for state use. Supporters of the New York adjustment argue it would bring the state closer in line with those models.
Critics, including some tax practitioners, warn that reducing the credit too aggressively could weaken participation in the optional tax system, ultimately limiting the expected revenue gains.
The proposal comes as New York continues negotiations over its broader budget framework, with state officials urging the city to focus on spending adjustments alongside potential new revenue measures.
