Trump’s new tax plan could raise costs for New York businesses by ending a key tax break.
What Is Trump’s New Tax Proposal?
Former President Donald Trump and his allies in Congress have introduced a federal tax bill that may soon impact businesses in New York. One of the most significant aspects of the proposal is the plan to eliminate the Pass-Through Entity Tax (PTET), a tax benefit many New York companies rely on to lower their federal tax bills.
Understanding the Pass-Through Entity Tax (PTET)
The PTET is a tax rule that allows certain businesses—such as partnerships, S corporations, and limited liability companies—to pay state income taxes at the entity level rather than at the individual level. This change is especially important because of the Tax Cuts and Jobs Act of 2017, which imposed a $10,000 cap on the amount of state and local taxes (SALT) that individuals can deduct on their federal returns. In high-tax states like New York, where taxes are often much higher, this cap can significantly increase the federal tax burden for business owners.
By electing to pay taxes at the business level, companies can fully deduct their state and local taxes on federal returns, thereby reducing their overall tax obligations. Introduced in 2021, the PTET was created as a workaround to counter the limitations imposed by the SALT cap.
Why Do Some Support Eliminating the PTET?
Supporters of the new tax bill argue that the PTET creates an uneven playing field between different business structures. They contend that because the PTET mainly benefits high-income individuals in high-tax states, eliminating it would simplify the tax system and ensure that tax benefits are shared more fairly. According to proponents, this change could generate an estimated $7 billion in federal revenue each year—a move they say would help balance the federal budget.
Moreover, the broader tax proposal includes measures such as raising the SALT deduction cap for individual taxpayers from $10,000 to $30,000 and permanently increasing the Qualified Business Income Deduction. These adjustments are intended to offset the impact on companies that would lose the PTET benefit.
Concerns from New York Businesses and Officials
Many New York business owners and state officials are deeply concerned about the plan to eliminate the PTET. They warn that without this tax break, pass-through businesses could face an additional $5–6 billion in federal taxes every year. For some companies, particularly small businesses and partnerships that form the backbone of New York’s economy, tax bills could jump by as much as 50%.
The prospect of increased taxes is also prompting fears that businesses might relocate to states with lower tax burdens, such as Florida or Tennessee. State officials have expressed anxiety over the potential loss of both economic activity and tax revenue, emphasizing that New York’s competitiveness is at stake.
Looking Ahead: What Happens Next?
Although the tax bill is still being debated in Congress, its provisions could have far-reaching implications for New York. Lawmakers are under pressure to find a balance between boosting federal revenue and protecting the economic interests of high-tax states. As discussions continue, there may be adjustments or additional measures introduced to help cushion the impact on pass-through businesses.
For now, New York’s business community is closely monitoring the legislative process, aware that changes in federal tax policy could reshape the economic landscape and determine where companies ultimately choose to invest.
