In her three years as governor of New York, Kathy Hochul approved a $600 million suspension of the state motor fuel tax, $2.2 billion in onetime homeowner property tax rebates, and, most recently, $350 million in temporary “supplemental” child credit payments. With $22 billion in budgetary reserves still apparently burning a hole in her pocket, the governor is now proposing the Empire State’s biggest cash giveaway yet: “inflation refund” checks totaling $3 billion.
If approved as part of the next state budget, Hochul’s latest handout would start flowing in the fall of 2025 to 8.6 million New Yorkers, taking the form of $300 payments to single taxpayers earning less than $150,000 and $500 payments to joint filers making less than $300,000. By way of justification, Hochul said that the inflation spike had “generated unprecedented revenues through the sales tax,” and that some of that cash should be returned to taxpayers. Rolling out her plan before a cheering audience at Co-Op City in the Bronx, Hochul declared: “Here’s my message: I’m on your side. I believe that this extra inflation-driven sales tax revenue shouldn’t be spent by the state. It’s your money, and it should be back in your pockets.” In case the point hadn’t been made crudely enough, standing behind her were supporters holding signs that read “Show Me the Money” and “Money in Your Pockets.”
In fact, a good chunk of the cash in question would not be returned to the pockets it came from. Hochul spent much of her Co-op City rollout speech lamenting the higher price of milk, eggs, hamburger and diapers—but these and other basic grocery items are already exempt from New York’s 4 percent state sales tax (to which counties and cities add up to 4.875 percent). An outsize share of state and local sales tax revenues is generated in hotels and restaurants, by tourists and nonresident commuters, and by purchasers of automobiles, furnishings, and appliances. A large portion of the state’s sales tax revenue surge since 2021 wasn’t fueled by inflation but by the resumption of normal shopping, dining, and travel patterns following the pandemic shutdown. By any normal economic standard, dropping a $3 billion cash windfall onto the laps of 8.6 million New Yorkers will itself prove at least mildly inflationary—with no lasting benefit to the state economy.
If inflation is truly the governor’s primary concern, she could address the issue far more equitably—and permanently—by “indexing” the state’s income tax code to the annual inflation rate. In the absence of indexing, rising nominal incomes inevitably push households into higher tax brackets. While it’s been part of the federal tax code since 1983, indexing was only belatedly introduced to New York’s tax code in 2011, then dropped in 2018 as part of a “middle class tax cut” that became fully effective last year.
A 2022 analysis by Peter Warren, then of the Empire Center, found that a family of four earning the statewide median household income of around $100,000 would be paying $1,000 less in income taxes every year if New York’s tax code had been continually adjusted for inflation starting in 1997, when then-Governor George Pataki’s tax cuts took effect.
Indexing could be phased in immediately at minimal cost, freeing billions for other purposes that, unlike Hochul’s refund, could produce recurring savings. One example: end the state’s practice of issuing capital bonds to finance $600 million in recurring annual aid for local highway and street improvements. Financing the aid with operating revenues—as the state has long done with a larger annual commitment of support for local school building projects—would ultimately save hundreds of millions of dollars in debt service every year.
Temporary inflation relief aside, Hochul’s latest handout has a more obvious and self-serving political motivation. Given her chronically low approval rating in state polls, worsened by her congestion pricing plan for midtown Manhattan, Hochul could use a boost as she enters the second half of a four-year term she hopes will not be her last. A cash giveaway is her way of addressing the voter “affordability” concerns that, according to a prevailing narrative among Democrats, were the main reason for Donald Trump’s significantly improved showing in New York State this year.
Thinking along similar political lines is Mayor Eric Adams, who last week announced his own proposal to reduce city income taxes on city families with dependents living at or below 150 percent over the poverty line, starting at roughly $31,000 for a single parent of one child. Unmentioned by the mayor: most families in these categories already pay little or nothing in state or city taxes, or many receive net refunds thanks to a combination of child credits and New York’s already exceptionally generous Earned Income Tax Credit. This helps explain why Adams’s proposal to reduce taxes for 582,000 people would have a budgetary impact of just $63 million—barely a rounding error in the context of the city’s $112 billion financial plan.
Some of Albany’s leading legislative Democrats interpret the postelection political climate as grounds for pushing harder than ever for more spending on everything from housing to health care to education to childcare—all to be funded through additional tax increases imposed on the highest-earning 1 percent of New Yorkers, who already generate more than half the state’s personal income and pass-through business revenue.
The governor’s $3 billion “inflation refund” gambit will be viewed by the legislature as just an opening bid—a floor for next year’s budget increase. Indeed, as if to confirm as much, a spokesman for Assembly Speaker Carl Heastie responded to Hochul’s announcement by calling it “a good start.”
If Governor Hochul is hoping to signal a commitment to spending restraint, this is a terrible way to do it.
Photo by ANGELA WEISS/Getty Images