Zohran Mamdani, the new mayor of New York City, is pressing ahead with plans for higher taxes on millionaires, brushing off warnings they will trigger an exodus of the wealthy from America’s financial capital.
Dean Fuleihan, incoming deputy mayor, acknowledged that “new revenues” would be required to balance New York’s budget and deliver on Mamdani’s expensive election promises. But he dismissed fears that rich people would turn their backs on the city in protest at a potentially higher tax burden.
“The people who are leaving are those who can’t afford New York, not the millionaire class,” Fuleihan told the Financial Times. Most people understood that addressing its affordability crisis was “necessary for the business and the success of New York”, he added.
Dean Fuleihan, incoming deputy mayor, centre: ‘We can’t simply say that there are fiscal challenges and therefore we can’t do what New Yorkers . . . stated they wanted to come out of this election’ © Barry Williams/New York Daily News/TNS/Getty Images
Mamdani, a self-described Democratic socialist, was sworn in as New York’s first Muslim mayor at a private ceremony in a disused subway station just before midnight on New Year’s Eve, marking the climax of a stunning rise to power that has dumbfounded America’s political establishment.
The 34-year-old New York state assembly member, whom most voters had never heard of a year ago, surged to success on a wave of anger over the high cost of living in America’s most populous city and a promise to use the power of government to help working-class New Yorkers.
He has pledged to raise the city’s personal income tax rate on annual earnings greater than $1mn by 2 percentage points to about 5.9 per cent and increase the top corporate tax from 7.25 per cent to 11.5 per cent — matching the rate in neighbouring New Jersey.
The extra revenues would pay for an ambitious social programme that includes free universal child care — expected to cost $6bn a year — as well as free buses, state-owned grocery stores and the construction of 200,000 affordable housing units over the next 10 years.
However, any revenue-raising proposals will encounter resistance in the New York assembly in Albany. Governor Kathy Hochul, a Democrat who is up for re-election this year, has said she is opposed to raising personal income taxes.
“It’s going to be a balancing act for Hochul,” said Basil Smikle, professor at Columbia University’s School of Professional Studies and a former executive director of the New York state Democratic party.
On the one hand she will be under pressure to help Mamdani implement his agenda but will have to avoid “triggering a backlash from conservative voters in the state”. “The suburban areas will pull her to the right,” he said.
However, Mamdani aides insist that Hochul wants to co-operate with the mayor to fulfil his election pledges.
“The governor has been very clear publicly that her intentions in the upcoming session is to be able to deliver on universal childcare,” said Sherif Soliman, director of the mayor’s Office of Management and Budget.
He noted that Hochul ensured that last year’s New York state budget included credits to help families pay for childcare.
In a December 28 interview, Hochul appeared to throw her weight behind Mamdani’s plans. “Employers in New York are really going to benefit when their own employees don’t have the stress of worrying about who’s taking care of their children,” she told 77 WABC radio.
Fuleihan said former mayor Bill de Blasio’s plans for universal, publicly funded early education for 4-year-olds, paid for by the city, were also initially panned as unrealistic.
“Everyone said it can’t happen . . . it’s not doable,” said Fuleihan, who was de Blasio’s budget director at the time. “Well, three months later it was funded by the state and it was executed in two years.”
One of Mamdani’s campaign promises was free universal child care © Mostafa Bassim/Anadolu/Getty Images
Mamdani faces other challenges, however. The previous administration of Eric Adams raised the New York City budget by more than $2bn to $118bn and left a projected deficit of about $4.7bn that will need to be covered under the city’s balanced budget rule.
The Citizens Budget Commission, a non-partisan fiscal watchdog, says the structural deficit Mamdani will face could end up being even larger — as much as $8bn. Outgoing city comptroller Brad Lander has said the city may have to close a $10.4bn budget gap in the next fiscal year.
The city has also been hit by federal spending cuts pushed through by US President Donald Trump. He has withheld or frozen $18bn in funding for infrastructure projects, while his “one big beautiful bill” made cuts to health and food stamps programmes that millions of poor New Yorkers rely on.
“Mamdani comes in with ambitious plans and serious fiscal challenges — a budget gap, the need to prepare for federal cuts and be better prepared for recession,” said CBC head Andrew Rein.
Mamdani met President Donald Trump at the White House in November © Yuri Gripas/Bloomberg
Rein warned Mamdani against raising taxes any higher, saying New York City already has one of the highest combined marginal personal income tax rates in the US. He added that polls showed only 11 per cent of the city’s residents thought their government was using their money wisely.
“So we have got to be concerned not only about the affordability of housing and transportation in New York City, but also the affordability of our tax system,” Rein said. “There is a real threat of outmigration of residents and businesses.”
He said that in the year ending July 2024, New York City lost 91,000 residents to domestic outmigration.
However, a study released in October by the Fiscal Policy Institute, a think-tank, found that when New York state last raised personal income tax rates in 2021 there was “no notable increase in outmigration among high earners”. It added that the top 1 per cent of earners moved out of state less frequently than all other income groups.
Fuleihan acknowledged the incoming Mamdani administration would operate under big fiscal constraints. “Look, it’s serious, I’m not going to minimise it,” he said. The city would need to raise “new revenue” to balance its budget, which he admitted required “co-operation with Albany”.
But “we can’t simply say that there are fiscal challenges and therefore we can’t do what New Yorkers . . . stated they wanted to come out of this election”, he said. Dealing with the affordability crisis was “our mandate”, he added.
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He said New York’s moneyed classes could easily absorb tax increases — especially as these will be outweighed by the substantial tax cuts in Trump’s “big beautiful bill” that specifically benefit the wealthy.
Soliman said it would be wrong to reduce New York to the fortunes of its finance industry and its many millionaires. The city was the “finance capital of the world” but also a city of “low-wage workers, be it in retail or healthcare”, a “tech scene” and a “thriving arts and culture community”, he said.
“It needs to be that global capital for all of the different economic and ethnic perspectives. And [Mamdani’s] agenda is animated by that.”
