Trump’s ‘big, beautiful bill’ could force NY businesses to shell out billions more in taxes — here’s why

A provision in President Trump's proposed spending bill aims to curtail pass-through entity tax (PTET) workarounds to the SALT cap, potentially costing New York's top-earning firms billions in extra taxes annually. This measure, intended to offset the restoration of SALT deductions for those earning under $431,000, could increase taxes for high-earning accounting, finance, and law firms by as much as six percentage points, potentially accelerating the exodus of businesses from the state, while smaller businesses may be forced to absorb the increased costs.

Analysis

A proposed provision within President Trump's spending bill targets the curtailment of Pass-Through Entity Tax (PTET) workarounds, a mechanism currently allowing New York service businesses to deduct approximately $16 billion in personal income taxes annually. This change, ostensibly designed by GOP lawmakers to offset a planned restoration of SALT deductions (raising the cap to $30,000 from $10,000 for individuals earning under $431,000), could paradoxically result in a significant tax increase, potentially as much as six percentage points, for New York's highest-earning accounting, finance, and law firms. These firms typically earn well above the $431,000 threshold for the expanded SALT cap, rendering the increased deduction nominal for them. The potential elimination of PTET benefits, which effectively reduced a 10% tax to around 4% for some partnerships, is viewed by experts as a potential catalyst for an accelerated exodus of businesses from New York, a trend already evidenced by the departure of nearly 160 Wall Street firms managing close to $1 trillion in assets since late 2019 and over 125,000 residents taking $14 billion in income to Florida between 2018 and 2022. The negative sentiment (-0.6) and pessimistic tone associated with this development underscore the perceived adverse impact on New York's economy, which is heavily reliant on high-earning individuals. Smaller 'mom-and-pop' service businesses, less mobile than larger entities, may be forced to absorb these additional costs. The proposal, which has advanced through the House Budget Committee, also faces political hurdles, with Trump urging unity among GOP lawmakers. The Association of International Certified Professional Accountants is actively opposing the measure, highlighting concerns that the PTET curtailment might also eliminate deductions for New York City's 4% unincorporated business tax, further compounding the financial burden. This legislative move revisits the 2017 Tax Cuts and Jobs Act, which initially capped SALT deductions, leading to the creation and widespread adoption of PTETs across at least 36 states.

Key Decisions for Investors

• Investors should closely monitor the legislative progress of this proposed tax change, as its enactment could materially increase operating costs and reduce profitability for New York-domiciled professional service firms.
• Consider re-evaluating exposure to companies and sectors heavily concentrated in New York, particularly those benefiting significantly from current PTET structures, given the potential for increased tax liabilities and the risk of accelerated business relocation.
• Assess the potential for contagion risk or similar legislative efforts in other states that have adopted PTET programs, as a federal crackdown could set a precedent impacting a broader range of investments beyond New York.
• Factor in the heightened uncertainty for New York's fiscal stability and its attractiveness as a business hub if these changes are implemented, potentially affecting investments in New York municipal bonds or real estate.