NY Budget Leaves the Future Vulnerable to Avoid Political Pain

New York Gov. Kathy Hochul’s (D) no-tax-hike budget will win headlines. But without new, stable revenue—especially from corporations—it will risk undercutting the very programs it aims to expand, such as universal childcare.

The budget offers a comforting illusion of fiscal restraint in a time of relative revenue stability. A smarter path would be to raise the top marginal corporate tax rate and make that surcharge permanent.

Granted, New York doesn’t have a revenue problem today. Yet by declining to raise new and stable revenue, the governor is setting the stage for a familiar cycle of expansive rhetoric in good times and painful cuts in hard ones.

To make durable investments in the state’s social infrastructure that survive the next downturn, Hochul must back them with equally durable funding. The Empire State doesn’t need to tread new ground—just raise the top marginal corporate tax to a locally competitive rate.

New York’s top marginal corporate tax rate—7.25% for companies with more than $5 million in income—is one of the more modest in the region, despite all the handwringing about potential business flight. New Jersey clocks in at 11.5%, while Connecticut sits at 8.25%. Even Pennsylvania, hardly a bastion of high taxation, is currently at 7.49%. New York is leaving tax revenue on the table while its neighbors are cleaning up.

A rate increase would help align tax policy with economic reality. High-earning corporations operating in New York benefit from the state’s infrastructure, labor, and market. Asking them to pay a slightly higher rate—even remaining below New Jersey’s and Connecticut’s—likely wouldn’t send them fleeing to Delaware. Given there are states with no corporate income tax, businesses located in New York likely have good reason to stay.

But instead of asking more from profitable corporations, Hochul’s budget leans on temporary and technical fixes to preserve revenue. Decoupling from certain provisions in the federal tax code is expected to save $1.4 billion—a sizable sum, but a maneuver that preserves the status quo. It blunts the negative state tax revenue effects of the 2025 federal tax law, while falling short of creating a new revenue stream.

These moves seem designed to buy time rather than build capacity. But time is a perishable commodity when it comes to budgeting. The longer the state waits to align recurring revenues with recurring commitments, the more painful the eventual alignment becomes. It’s how states and municipalities wind up announcing broad tax hikes during an economic downturn or making program cuts when taxpayers most need a social safety net.

The time to prepare for precarity is during periods of financial stability, with revenue up and reserves relatively healthy.

You can’t fund a policy vision on ideas alone, and you can’t fund universal childcare and infrastructure renewal only budgeting for periods of boom.

Photographer: Michael Nagle/Bloomberg via Getty Images

If Hochul wants to make childcare and other public investments permanent fixtures in New York’s social infrastructure, that rhetoric and ambition must be mixed with equal parts permanent revenue. Extending the corporate tax surcharge through 2029 is preferable to letting it expire, but it’s still a punt rather than a plan.

A real commitment would involve raising the top marginal rate to at least 8.5% for companies earning over $5 million, bringing New York closer in line with neighboring states. This would generate stable revenue to be put toward long-term programs.

Regarding stability, why not make the surcharge permanent? The worst time to debate raising taxes is in the middle of a crisis. Locking in durable funding now, while Wall Street is booming and budget reserves are at least decent, is wiser than scrambling for cash when markets crash or Washington throws a fiscal tantrum. This would ensure promises made to New Yorkers don’t evaporate the moment the stock market hiccups.

Budgets are equal parts purpose statements and actuarial documents. You can’t fund a policy vision on ideas alone, and you can’t fund universal childcare and infrastructure renewal only budgeting for periods of boom. Hochul’s budget may dodge some political pain today, but it leaves the state vulnerable tomorrow.

New York should raise corporate taxes now, when the money is flowing, to avoid the prospect of slashing services or hiking taxes on everyone when the tide turns.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

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