New York City’s budget just hit a speed bump, and Mayor Zohran Mamdani is pointing straight at a tax break he says is built for the ultra-wealthy. On Tuesday, Mamdani said he will hold off on submitting the city’s executive budget while he leans on Albany to scale back a lucrative rebate tied to the New York City pass-through entity tax. He is pitching the move as a way to pull in roughly $1 billion without broad-based tax hikes, warning that if the state does not act, the city could be staring at deeper cuts or other ways of raising cash.
Mamdani and Menin Push Albany to Act
Flanked by City Council Speaker Julie Menin on the steps of City Hall, Mamdani urged state lawmakers to shrink the city’s PTET credit to 75% and said he will seek a budget extender that runs through May 12, according to the Mayor's Office. The administration says a 75% rebate would keep a PTET benefit in place for pass-through businesses while sending nearly $1 billion back into city coffers. Mamdani and Menin also asked the City Council to sign off on a short extender so the executive budget can be written with Albany’s final decisions in hand.
How a 75% PTET Credit Would Add Revenue
The City Council has already sketched out how this would work. In its budget response, the council explains that trimming the PTET rebate from 100% to 75% would leave the voluntary business tax itself intact but cut back the personal income tax credit that owners claim, a tweak council staff estimate would bring in about $1.02 billion over fiscal 2026–27, according to the City Council. Council analysts add that even with the smaller rebate, the PTET workaround would still be profitable for most filers who use it.
What PTET Does and Who Benefits
The pass-through entity tax is a bit of tax code gymnastics. It lets partnerships and similar businesses pay a city business tax that then shows up as a credit on their owners’ personal income tax returns. The structure was created as a workaround after the federal cap on state and local tax deductions, according to the New York State Department of Taxation and Finance. Critics argue that, in practice, the credit tilts heavily toward high earners. Bloomberg has reported that hedge funds, private-equity firms and wealthy owners are among the biggest users of PTET, and that more than 95% of credits go to filers reporting over $1 million in income.
Mamdani’s Argument
“Today it serves as a tax cut for the rich,” Mamdani said, arguing that a smaller rebate would still protect relief for small businesses while steering more money toward city services, according to the Mayor's Office. Speaker Menin backed the change as a targeted way to shrink the city’s budget gap without resorting to broad-based tax increases on New Yorkers.
Albany Tug-of-War
Upstate, the politics are getting tight. Gov. Kathy Hochul has signaled she is open to some narrower and more politically palatable revenue ideas, including a pied-à-terre tax on ultra-luxury second homes, while continuing to resist across-the-board income tax hikes, according to reporting from CBS New York. With the state budget still unresolved and lawmakers trading one-house proposals, the fate of Mamdani’s PTET plan now hangs on Albany’s final round of negotiations, as covered by NY1.
What Happens Next
Any adjustment to the PTET credit has to be written directly into state law or the enacted state budget. Existing rules make clear that the PTET and the credits tied to it are set in Albany, not at City Hall, according to the New York State Department of Taxation and Finance. Over the coming days, the State Senate, Assembly and governor will try to hammer out a deal, and Mamdani’s team says it will use the short budget extender so that whatever Albany decides can be folded into the city’s executive budget.
The immediate stakes are straightforward. If state leaders sign off on shrinking the PTET credit, New York City could use the new revenue to avoid planned cuts or fresh city tax hikes. If they do not, Mamdani will be under pressure to find savings or other revenue options before the new fiscal year starts.
