New York City Mayor Zohran Mamdani and City Council Speaker Julie Menin stood together in late April 2026 and asked Albany to do something no other jurisdiction has done since the federal SALT cap took effect: cut the pass-through entity tax credit that lets the city’s wealthiest investors reclaim every dollar their firms pay in local taxes.
“This is a tax break that overwhelmingly benefits millionaires and billionaires,” Mamdani said in an April 2026 public appeal, calling on state lawmakers to reduce the city’s Pass-Through Entity Tax credit from 100% to 75%. Menin, speaking alongside the mayor, called the credit “a giveaway to the wealthiest New Yorkers at a time when the city is being forced to cut services that working families depend on,” according to the same City Council press release. The change, city officials estimate, would generate close to $1 billion in new annual revenue at a moment when New York faces a projected budget gap that independent analysts have pegged in the billions.
The $1 billion revenue figure comes from the mayor’s office and the City Council. As of May 2026, neither the NYC Independent Budget Office nor the state Division of the Budget has published an independent estimate confirming or disputing that number. Readers should treat it as an official projection that has not yet been externally validated.
The proposal already has unusual legislative momentum. Both the New York State Senate and the Assembly included a 75% cap in their one-house budget resolutions for fiscal year 2026, amending the Tax Law and the city’s Administrative Code to replace the full credit with a three-quarter credit. The City Council press release describes the Senate and Assembly language as aligned on the 75% threshold, though the full resolution texts have not been independently compared here and may differ in ancillary details. That rare bicameral alignment places the measure squarely on the negotiating table as three-way talks between the legislature and the governor’s office enter their final stretch in May 2026.
How the credit works and why it skews toward Wall Street
New York created the city-level Pass-Through Entity Tax in 2022 under state Tax Law Article 24-B. The program was a direct response to the 2017 federal tax law that capped state and local tax deductions at $10,000, a limit that hit high-tax jurisdictions like New York especially hard.
Under the program’s rules, partnerships, S corporations, and limited liability companies can elect to pay an entity-level city tax. Their individual owners then claim a dollar-for-dollar credit on personal state returns. Because the credit is fully refundable, filers can receive cash back even when their personal city tax liability drops to zero.
The structure is open to pass-through business owners at every income level, but the benefits have concentrated sharply at the top. According to figures cited by the mayor’s office and City Council, more than 95% of NYC PTET credits flow to taxpayers earning above $1 million a year, and more than 80% go to those earning above $5 million. Hedge fund partners, private equity principals, and senior professionals at law and consulting firms organized as partnerships account for a disproportionate share of the dollar volume. Those figures have not been independently confirmed by the state tax department or the city’s Independent Budget Office, though they were presented on the record by named officials.
The reason is structural. The credit has no individual cap, so a partner at a large fund whose entity pays tens of millions in PTET can reclaim the full amount. A small-business owner with a modest stake might offset a few thousand dollars. The result is a program that functions, in practice, as a targeted rebate for a narrow and extremely high-earning slice of the city’s tax base.
What the cap would change
The proposed adjustment is narrow. It would not alter how businesses elect into the PTET, how the entity-level tax is calculated, or how the federal workaround operates. The only change: individual owners could reclaim 75 cents on the dollar instead of a full dollar.
Consider a private equity principal whose firm paid $4 million in NYC PTET. Today, that principal receives a $4 million personal credit, wiping out the entire city tax obligation. Under the cap, the credit would drop to $3 million, leaving a $1 million net payment to the city. Multiply that across thousands of filers in financial and professional services, and the aggregate revenue reaches the scale City Hall projects.
Mamdani and Menin have framed the change as a fairness measure. A credit designed to help business owners cope with federal tax changes, they argued, has become a windfall for millionaires while the city cuts services. The projected budget gap for the current fiscal cycle runs into the billions, driven by rising costs for migrant services, expiring federal pandemic aid, and contractual obligations to city workers. The roughly $1 billion in projected new revenue, they said, could help close that gap without raising taxes on middle-income residents or small businesses that barely use the credit.
City officials have pointed to education funding, public safety, and social services as areas under strain, though the proposal does not earmark the revenue for any single purpose.
A competitive question other states are watching
New York’s PTET is one of more than 30 state-level pass-through entity tax programs created nationwide after the 2017 federal SALT cap. Most states that adopted similar workarounds offer credits at or near 100%, making New York City’s proposed reduction one of the first deliberate rollbacks anywhere in the country.
That distinction raises a practical concern for policymakers: whether capping the credit could push some firms or partners to shift activity to states where the full offset remains available. Neither the mayor’s office nor the legislature has published an analysis of potential migration effects, and no independent study of that question has surfaced in the public record as of May 2026.
The governor’s position remains the key unknown
No final state budget can take effect without the governor’s signature. As of May 2026, Governor Kathy Hochul’s office has not publicly endorsed or opposed the 75% cap. Her executive budget proposal did not include a PTET credit reduction, but it also did not explicitly protect the current 100% rate.
Hochul has historically balanced business-friendly positioning with support for progressive revenue measures, and budget watchers in Albany say her silence likely reflects a deliberate strategy to preserve bargaining room rather than outright opposition. Whether the 75% cap survives the three-way negotiation intact, gets softened to a different threshold, phased in over multiple years, or paired with carve-outs for certain industries remains an open question heading into the final weeks of budget talks.
The financial industry has not weighed in publicly
The financial industry’s silence so far is conspicuous. As of early May 2026, no major hedge fund or private equity trade association has issued a public statement responding to the proposal. No on-the-record comments from affected business owners or tax attorneys advising pass-through entity clients have appeared in the documented record.
That quiet is unlikely to last. As budget talks intensify, affected industries are expected to weigh in through lobbying, public comment, and potentially legal challenges if they believe the cap undermines the federal workaround the program was built to provide. For now, the debate has been shaped almost entirely by elected officials advocating for the cap, with the perspectives of those who would bear the cost largely absent from public discourse.
Where the PTET cap stands as Albany’s budget deadline approaches
For New York City residents who own interests in pass-through entities and currently claim the PTET credit, the proposal is not yet law. But the alignment between the mayor, the council speaker, and both legislative chambers is unusual and suggests that some version of a credit reduction has strong odds of making it into the final budget.
Tax advisers are already recommending that affected clients model scenarios under both a 100% and 75% credit to understand the potential hit to cash flow, estimated tax payments, and entity-level planning. Firms that elected into the PTET for 2026 may want to revisit that decision once the final budget language is clear.
Until the governor signs a bill, the cap remains a live negotiation. But the political momentum behind it is the strongest signal yet that New York City’s most generous high-end tax benefit is about to shrink.
