“That’s absolutely what’s going on,” said EJ McMahon, a fellow at the Manhattan Institute for Policy Research.
Currently, a partnership or other non-incorporated business paying a 10% tax could reduce it to about 4% using PTET, the source explained.
Even if these firms did qualify, a $30,000 credit is nothing to those paying the bulk of New York’s tax revenue, McMahon said.
“It clobbers the real lucrative end and New York’s tax base is more disproportionately reliant than ever on very high-earning individuals,” McMahon told The Post.
During his first term in 2017, Trump signed the Tax Cuts and Jobs Act, which capped SALT deductions at $10,000.
The Post has learned that a little-known clause in President Trump’s spending bill would force New York’s highest-earning companies to pay billions of dollars in additional taxes annually. Experts say this could hasten a business exodus that has already severely damaged state and local coffers.
Hidden within Trump’s 1,100-page “big, beautiful bill” for federal tax cuts is a one-sentence proposal to limit SALT cap workarounds that take the form of pass-through entity taxes, or PTET, which provide New York service businesses, including attorneys, accountants, physicians, dentists, and veterinarians, with annual personal income tax deductions of approximately $16 billion.
Amending the PTET loophole looks like an attempt by GOP lawmakers to offset a proposed restoration of SALT deductions on state and local taxes — massive breaks enjoyed by New Yorkers that Trump had controversially downsized during his first presidential term, according to tax experts.
EJ McMahon, a fellow at the Manhattan Institute for Policy Research, stated, “That’s exactly what’s happening.”. There is a lot of tension that this has caused. “”.
For individuals earning less than $431,000 annually, the current SALT deduction cap would be raised from $10,000 to $30,000 under the Republican spending bill, which was approved by the House Budget Committee on Sunday.
According to a former partner at a national CPA firm who asked to remain anonymous, the issue is that, even with an increase in SALT deductions, the city’s highest-paid accounting, finance, and law firms would effectively see a six percentage point increase in their taxes if PTET were to be curtailed.
The source clarified that a partnership or other non-incorporated business that currently pays a 10 percent tax could use PTET to lower it to roughly 4 percent.
This could be the decisive factor if a business was about to relocate. “This might be the last straw,” personal finance specialist Bobbi Rebell told The Post.
That’s because, according to experts, the top-earning companies in New York usually pull down far more than $431,000 a year and are therefore ineligible for the SALT cap. According to McMahon, even if these businesses were eligible, the people who bear the majority of New York’s tax burden would not care about a $30,000 credit.
“It clobbers the real lucrative end and New York’s tax base is more disproportionately reliant than ever on very high-earning individuals,” McMahon told The Post.
A large portion of New York’s smaller mom-and-pop service companies will also be devastated by the loss of PTET, but they will have to persevere and weather the storm, according to experts.
A former partner at a New York accounting firm told The Post that it is slightly more difficult for accountants and attorneys to relocate to Florida than it is for Wall Street professionals, as their clients are based in New York.
To little effect, Trump pleaded with unwilling GOP lawmakers to support his bill on Tuesday.
The White House did not immediately respond to The Post’s request for comment.
Members are being urged by the Association of International Certified Professional Accountants to call their representatives in Congress to voice their opposition to the termination of PTET.
According to McMahon, the elimination of PTET may also eliminate the deduction for New York City’s 4% unincorporated business tax, which would be particularly harsh on residents of the Big Apple.
Requests for comment from The Post were not immediately answered by the budget and finance departments of New York City.
The Tax Cuts and Jobs Act, which Trump signed into law during his first term in 2017, set a $10,000 cap on SALT deductions.
By avoiding this cap, the pass-through tax was developed, enabling partnerships and small businesses to claim significant deductions and replace business taxes with personal income taxes.
At least 36 states nationwide have adopted their own PTET programs since the IRS approved the rule in 2020, a few days after Trump lost to Joe Biden in the reelection race.
A study conducted by the nonpartisan Citizens Budget Commission found that over 125,000 people from New York City moved to Florida between 2018 and 2022, taking with them almost $14 billion in income.
