Mamdani’s “Tax the Rich” Plan Would Double-Tax Small Businesses

New York City’s budget mess is quickly becoming a warning to every small and family-owned business in the country.

Mayor Zohran Mamdani and City Council Speaker Julie Menin are pressing Albany to cut the New York City Pass-Through Entity Tax credit from 100 percent to 75 percent. They are presenting the plan as a way to raise new revenue from high earners while the city faces a budget crisis. The political sales pitch is familiar, but the target is far broader than the slogan suggests.

This is being sold as a tax hike on “the rich.” In practice, the proposal would double-tax business profit earned by pass-through businesses, including LLCs, LLPs, partnerships, and S corporations of any size. The business would pay the full tax first. Then the owner would lose part of the credit and pay taxes a second time on the same business profit.

These are not exotic tax shelters. They are among the most common business structures used by small businesses, family-owned firms, professional practices, contractors, restaurants, and local employers.

New York Has Two Separate PTET Credits

Pass-Through Entity Taxes are used by almost every state as a practical way for small and family-owned businesses to pay business tax at the business level. These taxes apply to pass-through businesses, including LLCs, LLPs, partnerships, and S corporations, whose profits later pass through to the owners’ individual tax returns.

That structure only works if the owner receives a full credit for the tax already paid at the business level. A 100 percent PTET credit prevents the same business income from being taxed twice: once when the business pays the PTET and again when the profit passes through to the owner.

New York has two different PTETs, and they should not be confused.

The state has its own PTET. Under various Assembly proposals, the state PTET owner credit would be reduced from 100 percent to 90 percent.

New York City has a separate PTET. Under the Mamdani-Menin plan, the New York City PTET owner credit would be reduced from 100 percent to 75 percent.

Those are two separate taxes at two separate levels of government. Both proposals weaken the credit that keeps pass-through business income from being double-taxed.

The Target Is Pass-Through Businesses

Pass-through businesses are called pass-throughs because their income passes through to the owners’ individual tax returns. That basic structure is used across the economy by local employers, closely held companies, family partnerships, professional firms, and Main Street businesses.

A business owner can show high taxable income on paper even when much of that money is tied up in payroll, rent, inventory, equipment, debt service, and the cost of keeping the doors open. Treating every pass-through owner as “the rich” ignores how these businesses actually operate and how thin their margins can be.

The proposal does not narrowly target billionaires or hedge fund executives. It changes the tax treatment of pass-through business income. That means the burden can fall on small and family-owned businesses that have nothing to do with the political caricature being used to sell the plan.

A Double Tax by Another Name

Supporters want to reduce the New York City PTET credit from 100 percent to 75 percent. That may sound like a technical change, but the effect is straightforward: the business pays the full tax, and the owner no longer receives the full offsetting credit.

That is double taxation. The same business profit is taxed once at the business level through the PTET and again at the owner level when the credit is reduced. A smaller credit means a higher tax burden on the owner for income that has already been taxed through the business.

This is the problem with class-warfare tax policy. It often starts with a narrow slogan and ends with a much broader tax base. A small manufacturer, local contractor, medical practice, law firm, restaurant group, or S corporation with real payroll and real operating costs can be swept into the same political category as the wealthiest New Yorkers.

Calling this a tax on “the rich” does not make it one. It is a tax increase on business income earned through common business structures used by employers across the city.

New York Should Cut Spending Before Punishing Employers

Mamdani has argued that New York City cannot close its deficit with savings alone and needs both new revenue and a reset in its relationship with Albany. That approach gets the order wrong. A city facing a budget shortfall should start by asking whether taxpayers are getting value for what government already spends.

New York City does not need another tax increase that makes it harder to operate a business, hire workers, or stay competitive. It needs spending discipline before it asks employers for more money.

Small and family-owned businesses already face high costs, heavy regulation, rising labor expenses, and one of the most difficult tax climates in the country. Double-taxing pass-through business profit would add another cost to doing business in New York at the exact moment city leaders should be making it easier to stay, grow, and hire.

CFE Takeaway

The Mamdani-Menin proposal shows how quickly “tax the rich” rhetoric can turn into higher taxes on small and family-owned businesses.

LLCs, LLPs, partnerships, and S corporations are not loopholes. They are standard business structures used by employers across the economy. When government targets pass-through income, it targets the businesses that create jobs, serve customers, and keep local economies moving.

New York City’s budget crisis should not become an excuse to double-tax the businesses that remain in the city despite high taxes, high costs, and growing political hostility. The better answer is spending restraint, not another tax increase disguised as fairness.