How Zohran Mamdani’s Tax Hikes Impact Businesses in NYC (and Beyond)

by | Jun 26, 2025 | Business Articles, Economy and Economics, Perspectives, Small Business

NYC New York City Exit Now NYEXIT Mandami's Tax Hikes

Summary

Zohran Mamdani’s proposed tax hikes, a 2% income surtax on earnings over $1 million and a corporate tax increase to 11.5%, pose significant challenges for small businesses and flow-through entities in New York City. High-earning owners face direct tax burdens and indirect effects, such as rising property taxes and labor costs, which could strain all small businesses. The risk of relocation to lower-tax areas, such as Florida, Texas, or nearby suburbs, is a critical concern, with the potential to erode NYC’s tax base and economic vitality [3][7][8]. Would Mamdani’s election as mayor create NYC’s own “Brexit” event?

Zohran Mamdani’s (a self-proclaimed democratic socialist (an oxymoron)) victory in the New York City Democratic mayoral primary on June 24, 2025, has placed his ambitious economic agenda under intense scrutiny, particularly his proposed tax hikes to fund expansive social programs. Ignoring the fact that a mayor doesn’t have the power to implement the majority of this plan, let’s examine his revenue/tax plan.

What are the Tax and Other Policy Impacts?

His platform, which includes a 2% income tax surcharge on individuals earning over $1 million annually and an increase in the corporate tax rate from 7.25% to 11.5%, aims to generate $10 billion annually to support initiatives like rent freezes, free bus services, and city-owned grocery stores [1][4][6]. Furthermore, his proposed tax increases, combined with the policies mentioned above, could significantly impact small businesses and flow-through entities (e.g., S corporations, partnerships, and LLCs) in New York City, resulting in both direct financial burdens and indirect economic consequences. A key concern is the potential for businesses and high-net-worth individuals to relocate to lower-tax jurisdictions, such as Florida, Texas, or even nearby areas like New Jersey or Connecticut, to avoid these costs[3][7][8].

This article examines the direct and indirect effects of Mamdani’s tax proposals on small businesses and flow-through entities. It also takes into consideration relocation risks and other factors.

Direct Effects on Businesses

Increased Tax Burden on High-Earning Owners

Mamdani’s proposed 2% surtax on incomes over $1 million directly affects owners of flow-through entities, where business income is reported on personal tax returns [1][5][7]. For high-earning owners, this could result in reduced after-tax profits, limiting funds for reinvestment, expansion, or operational expenses. For example, an owner earning $2 million annually would face an additional $20,000 in city income taxes, which could potentially impact business decisions, such as hiring or making capital investments. [8] The corporate tax increase to 11.5%, intended to match New Jersey’s rate, would not directly apply to flow-through entities but could set a precedent for broader tax hikes, increasing financial uncertainty[1][4][6].

Impact on Small Business Owners with Lower Incomes

Owners of flow-through entities with incomes below the $1 million threshold may avoid the surtax but could still face indirect costs. Rising commercial property taxes, driven by Mamdani’s REPAIR Act to eliminate exemptions for institutions like Columbia and NYU, may lead landlords to increase rents or impose additional fees on small business tenants [5][7]. Additionally, the proposed corporate tax hike could deter small businesses from considering incorporation as C-corporations, making NYC less attractive compared to jurisdictions with lower taxes [5][6].

Corporate Tax Increases

For small businesses structured as C corporations, the jump from a 7.25% to an 11.5% corporate tax rate could significantly increase operating costs, thereby reducing profitability[1][4][6]. Mamdani’s campaign estimates this increase will generate $5 billion annually. Still, critics question the math, noting that a 2.5% rate hike may not yield such a dramatic increase, given the dominance of individual over corporate tax revenue.[1] Small C-corporations, already operating on thin margins, may struggle to absorb these costs, potentially leading to reduced investment or closures.

Indirect and Broader Economic Effects

Relocation and Restructuring Risks

The proposed tax hikes heighten the risk that businesses and high-net-worth individuals will relocate to lower-tax areas. In recent years, individuals and companies have relocated to Florida (with no state income tax), Texas, Tennessee, or even nearby New Jersey and Connecticut, which offer lower overall tax burdens despite similar corporate rates [3][7][8].

For instance, billionaire John Catsimatidis has threatened to close nearly 30 Gristedes and D’Agostino stores and move his headquarters to New Jersey, citing Mamdani’s policies as untenable [2][7]. Hedge fund manager Ricky Sandler of Eminence Capital has similarly indicated plans to relocate his business and family, reflecting concerns among high earners [7][8].

A Reddit discussion on r/AskEconomics highlights that high earners and their companies are exceptionally mobile, with some already moving to places like Palm Beach or Miami since the COVID-19 pandemic [8]. This mobility could shrink NYC’s tax base, potentially necessitating further tax hikes or service cuts, creating a feedback loop that harms the local economy [1][3][8].

Pressure from Increased Labor Costs

Mamdani’s proposal to raise the minimum wage to $30 per hour by 2030, although not a tax, compounds financial pressures on small businesses, particularly in labor-intensive sectors such as retail, hospitality, and food service [2][4][5]. Combined with tax increases, this could force businesses to reduce staff, automate processes, or raise prices, potentially compromising competitiveness or driving customers to lower-cost jurisdictions [2][8]. For flow-through entities, higher labor costs reduce profits, amplifying the impact of the income surtax on high-earning owners.

Potential for Increased Costs Passed to Tenants

Commercial landlords facing higher property taxes or reduced exemptions may pass costs to small business tenants through higher rents or fees [5][7]. The REPAIR Act’s elimination of tax breaks for major institutions signals a broader shift toward increasing property tax burdens, which could ripple through to commercial leases, especially in mixed-use buildings [5]. This indirect cost increase could strain small businesses already grappling with tax and wage pressures.

Relocation to Lower-Tax Areas as a Strategic Response

The option to relocate to lower-tax jurisdictions is a significant concern for Mamdani’s tax plan, particularly given NYC’s proximity to lower-cost areas and the mobility of high earners and businesses [3][7][8]. Key considerations include:

Geographic Proximity and Ease of Relocation

Unlike state-to-state moves, relocating to nearby suburbs like Nassau County, Hoboken, or Greenwich, Connecticut, allows high earners to maintain NYC jobs while avoiding city income taxes [8]. For example, a Reddit commenter notes that living in Nassau County eliminates the NYC income tax while requiring only a slightly longer commute [8]. Businesses, particularly in finance or tech, can similarly shift headquarters to New Jersey or Connecticut, where tax burdens may be lower, while still accessing NYC’s market [8].

Attractive Destinations

Florida, Texas, and other states without income taxes are prime destinations for high-net-worth individuals and businesses. Miami and Dallas have experienced increased migration since the COVID-19 pandemic, with financiers such as Dan Loeb and Bill Ackman warning of further capital flight [7][8]. However, challenges like Florida’s rising insurance costs due to frequent hurricanes and Texas’s infrastructure issues (e.g., electricity crises) may temper some relocations [8]. Still, the tax savings, potentially $1.53 million annually for a $10 million earner compared to NYC’s 15.3% effective state and local tax rate, make relocation appealing [8].

New York leadership at the state and municipal levels seems to think that the rest of the nation cannot compete with their cultural attractions. They also seem to believe that institutions like Wall Street companies and the New York Stock Exchange can be taken for granted as immovable. Historically, major financial institutions were often anchored by infrastructure and other factors to a particular physical location. It is a new era, where technology makes any institution or individual portable. The advent of the Texas Stock Exchange should give New York pause. (The Texas Stock Exchange (TXSE) is a new, fully electronic national securities exchange based in Dallas, aiming to launch in 2026 to challenge the dominance of NYSE and Nasdaq by offering stricter listing standards and targeting companies in Texas and the Southeast [11][14][15][16].

Economic Ripple Effects

If significant numbers of high earners or businesses leave, NYC could lose billions in tax revenue, as seen in a reported $9 billion budget decline from 2017 to 2022 due to migration to Florida [8]. This exodus could reduce funding for public services, impacting the quality of life that keeps businesses in NYC.

State-Level Collaboration Challenges

Mamdani’s tax hikes require approval from the state legislature and Governor Kathy Hochul, who has expressed skepticism, citing concerns about affordability and the risk of driving residents to places like Palm Beach [3]. If state support doesn’t materialize, Mamdani may need to scale back or reconfigure his plans, reducing the immediate tax burden on businesses and high earners [1][3].

Summary Table

Policy/EffectImpact on Small Businesses/Flow-ThroughsMitigation Strategies
2% surtax on >$1M incomeHigher taxes for high-earning owners, reduced profitsTax credits, relocation incentives
Higher corporate tax ratesLess attractive for C-corporations, impacts incorporationGradual phase-in, small business exemptions
Commercial property taxRent increases for tenants, landlord cost pass-throughSupport for small landlords, tenant protections
Minimum wage increaseHigher labor costs, potential closuresGradual implementation, automation grants
Reduced fines/feesLower administrative costs, faster approvalsExpand support programs, streamline processes
“Mom-and-Pop Czar”Advocacy, support for small business interestsStakeholder engagement, targeted assistance
Relocation to lower-tax areasLoss of tax base, reduced economic activityIncentives for retention, public-private partnerships

The New York City’s Own “Brexit”: NYEXIT

Zohran Mamdani’s proposed tax hikes, a 2% income surtax on earnings over $1 million and a corporate tax increase to 11.5%, pose significant challenges for small businesses and flow-through entities in New York City. High-earning owners face direct tax burdens and indirect effects, such as rising property taxes and labor costs, which could strain all small businesses. The risk of relocation to lower-tax areas, such as Florida, Texas, or nearby suburbs, is a critical concern, with the potential to erode NYC’s tax base and economic vitality [3][7][8]. If Mamdani becomes mayor, will he create NYC’s own “Brexit” event?

Conclusion

Some argue that there are potential “offsets” to mitigate the risk of a NYEXIT. However, those programs that Mamdani and fans of democratic socialism put forth have a crucial flaw. They are the fruits of the increased taxes. They are essentially redistributions of wealth. The success of his agenda hinges on state-level approval, effective implementation, and strategies to retain businesses and high earners, such as targeted incentives and stakeholder engagement. As the November 2025 general election approaches, small business owners must weigh the costs and benefits of Mamdani’s policies and advocate for measures that ensure NYC remains a competitive hub for economic activity.

References

  1. Forbes, “3 Key Issues Surrounding Zohran Mamdani’s New York City Tax Increase,” June 25, 2025.
  2. CNN, “Zohran Mamdani’s Proposals and Business Reactions,” June 25, 2025.
  3. New York Post, “Gov. Hochul Rips Zohran Mamdani’s Tax on Rich,” June 18, 2025.
  4. Fox Business, “NYC Dem Socialist Zohran Mamdani Wins Primary Election,” June 25, 2025.
  5. Metro Manhattan Office Space, “Mayor Zohran Mamdani: Impact on NYC Commercial Real Estate,” June 25, 2025.
  6. New York Post, “Socialist NYC Mayoral Candidate Zohran Mamdani Plans for Major Corporate Tax Hikes,” March 9, 2025.
  7. The New York Times, “Why N.Y.C. Business Leaders Fear Mamdani,” June 24, 2025.
  8. Reddit, r/AskEconomics, “Would a Tax Plan Like Zohran Mamdani Cause Wealthy New Yorkers to Flee?” June 25, 2025.
  9. CNBC, “Primary Win by Pro-Rent Freeze Mamdani Knocks Shares of Flagstar Bank,” June 25, 2025.https://www.txse.com
  10. https://www.txse.com/insights-analysis
  11. https://www.troutman.com/insights/new-texas-stock-exchange-aims-at-nasdaq-and-nyse.html
  12. https://www.cowlesthompson.com/resources/practice/business-law/texas-stock-exchange/
  13. https://www.dmagazine.com/publications/d-ceo/2025/may/inside-the-battle-on-yall-street-texas-stock-exchange-nyse-nasdaq/
  14. https://www.investopedia.com/texas-stock-exchange-11722662
  15. https://thestatement.bokf.com/articles/2025/04/welcome-to-yall-street
  16. https://www.reuters.com/markets/us/texas-stock-exchange-files-operate-nationally-eyes-trading-early-2026-2025-01-31/