New York City mayor Zohran Mamdani campaigned on universal childcare, fare-free buses, and municipal grocery stores—all of which he wants corporations to pay for. As a candidate, Mamdani called for New York State to raise its top corporate income tax bracket from 7.25 percent to 11.5 percent. This, Mamdani said, would match New Jersey’s rate (the highest in the country). New Yorkers by-and-large support the idea: 67 percent say they favor higher taxes on corporations—no doubt because they think only corporations will bear the burden.
Unfortunately, that’s not true. Nor is Mamdani’s plan as modest as he depicts it. Large corporations in New York City are subject to far higher corporate tax rates than elsewhere, since the city also levies its own corporate tax—rarely mentioned by Mamdani. If the state signs off on Mamdani’s proposal, then New York, already an expensive place to do business, would become an even less appealing investment. And all of this ends up hurting not “the rich,” but everyday workers and consumers.
New York State businesses already pay a lot of taxes. In addition to the 21 percent federal rate, the state charges them at a rate of 6.5 percent on the first $5 million, and 7.25 percent beyond that. Most businesses also pay a 30 percent MTA surcharge on that state corporate tax, if the business activity was carried out in and around the New York City metropolitan area. And finally, New York City charges its own corporate tax of 8.85 percent—the tax Mamdani often leaves out.
Thus, corporate profits above $5 million are currently taxed at a combined rate of 18.275 percent in New York City. Since New York City competes for investment not just with the rest of the country but also the rest of the world, one must factor in the federal rate, bringing the corporate tax rate to 39.275 percent. Mamdani’s proposal would raise that number to a staggering 44.8 percent.
New Jersey, by comparison, has a top rate of 11.5 percent—32.5 percent if you add in the federal charge. New Jersey’s top rate also only kicks in on profits over $10 million. The absence of city-level corporate taxes also makes it more competitive than New York.
Raising the corporation tax rate would require approval from the State Legislature. If Mamdani succeeds in convincing them to do so, it would be difficult for companies to avoid it simply by incorporating elsewhere. Corporate taxes apply to all profits derived from business, sales, and receipts within New York, regardless of where the seller is located or incorporated.
The move would therefore make New York City one of the least friendly business environments in the country, with rates far higher than any other jurisdiction when all taxes are properly taken into account.
“Good. Tax the rich! Tax the rich!” some will say. A closer look at the mechanics of corporate taxes, however, reveals that most of their costs are borne by consumers and workers, not shareholders.
Proponents of corporate taxes sometimes assume that it’s the shareholders who pay, usually in the form of lower dividends or corporate income. But that’s not what occurs. When governments increase taxes on corporations, return on investment decreases. Investors, seeking to maximize returns, will then allocate future resources to areas with higher returns. For example, a company might choose to open new stores in Miami rather than Manhattan, since returns would be higher. Capital investment (machinery, buildings, labor, etc.) then decreases, both because some of the profits are directly reallocated to the state, and because investors shift their resources elsewhere.
Workers are the most affected by this: less capital (think machinery, resources, tools, etc.) means workers are less productive, which ultimately translates into lower wages. Companies might also offset taxes through automation, freezing hiring or firing workers. Empirical studies have demonstrated this connection repeatedly: workers end up absorbing between 50 and 70 percent of the cost of corporation taxes, mostly in the form of lower wages, bonuses, and reduced bargaining power.
It’s hard to see costs when those costs take the form of opportunities and jobs not created. Nevertheless, the harms steadily accrue: as Veronique de Rugy, an economist at the Mercatus Center specializing in taxation, told me, “corporate tax shows up in real life as fewer office openings, delayed projects, less innovation, and ultimately lower pay for workers.”
High corporate taxes are also bad for affordability, since the costs are often passed onto consumers. One study found that about 52 percent of the burden of corporate taxes is tacked right onto the cost of goods sold, ultimately meaning higher prices at the checkout. Shareholders—which include most people who have a retirement fund—bear 25 percent of the cost of corporation taxes.
“Corporate income tax is the most distortive way to raise revenue,” said de Rugy. And in the end, it’s mostly paid for by workers and consumers anyways.
If Mamdani is insistent on growing New York City’s transfers, there are better ways to do it than hiking corporate taxes. The city could find less useful spending items—like universal free school meals, even for families whose incomes far exceed the median—and reallocate their budget to expanding existing public childcare.
Better yet, it could figure out what’s making services like childcare so expensive in the first place. That could mean raising some of the child-to-staff ratios, decreasing the taxes which make it so much more expensive to hire people, and addressing the high costs of land.
Such interventions would increase availability and lower cost. No-doubt, some New Yorkers would feel cheated out of the free childcare Mamdani said greedy corporations would pay for. Economics tells us, however, that there is no such thing as a free lunch.
History has told us many things about utopian visions and policies, but Mandani and his ilk have chosen not to listen.