Aidin Bharti/Office of the Governor
New York state has reaped a bumper crop of tax revenue over the past five years — thanks largely to a historic surge in capital gains and Wall Street bonuses ginned up by a doubling of stock prices since the market bottomed out in late March of 2020.
But the stock market’s rollercoaster ride in the wake of President Trump’s tariff shakeup could reverse that trend — and should make Gov. Hochul take a hard look at her massive $252 billion budget plan.
Hochul’s executive budget for this fiscal year, released in January, projected a further 12.4% gain in the S&P this year — down by roughly half from each of the previous two years, but still not bad by historical standards.
In February, as the S&P 500 hit its most recent peak, Hochul’s budget director and legislative fiscal staffers agreed that the state’s tax revenue projection could be raised — by $550 million to $800 million over their initial forecast.
Then the S&P tumbled mostly downward. By the March 31 end of the fiscal year, the index had fallen 8% from its peak.
But the worst was yet to come.
In the first four business days following Trump’s April 2 rollout of sweeping tariff hikes, the S&P fell another 12%.
On Wednesday, after he announced a 90-day pause for most countries, the index had reversed course — but was still 11% down from its February high point.
The “global tariff rout,” as The Wall Street Journal described it, has significantly worsened the outlook, at least on a short- to near-term basis, for New York-based financial markets — and, by extension, for New York state’s revenue base.
Fortuitously, the overdue state budget for the fiscal year that started April 1 allows time for adjustment, on both sides of the ledger.
It should be obvious that New York’s optimistic late-February revenue projection needs to be taken down a few notches.
At the very least, Hochul should cancel her proposed $3 billion “inflation refund” cash giveaway, a profoundly dubious idea to start with.
She also needs to take a much harder line against the Legislature’s push to add billions to her already inflated budget — which wasn’t balanced to begin with, and which called for the highest state operating-funds spending increase sought by any governor in 40 years.
No, the stock market is not synonymous with the economy as a whole, and for all the negative reaction to Trump’s tariffs policy, the economy isn’t in a recession. Not yet, anyway.
But Wall Street accounts for a larger chunk of New York state’s tax revenue than any other industry.
In a good year, like fiscal 2025, it exceeds 20% of total tax revenues.
Last year’s record-high securities industry bonus pool — just the increase in the pool, not the total bonus handout — boosted state revenues by $600 million.
And that’s just one element of the total financial-sector share of the revenue base: Soak-the-rich tax hikes have made New York more dependent than ever on the incomes of millionaire earners, who generate roughly half of the state’s largest revenue source, the personal income tax.
Capital gains, heavily concentrated among high earners subject to higher tax rates, are another crucial factor affected by stock prices.
After spiking at an all-time high of $203 billion in 2021, the capital gains income of New Yorkers is estimated at nearly $100 billion in tax year 2024.
Hochul’s budget assumed a $23 billion jump in capital gains for the current tax year, driving roughly a $2 billion increase in tax revenues.
But with the stock market now shaky, that number needs to be revisited.
Bottom line: The tariff turmoil should be setting off alarm bells at the budget negotiations table in Albany.
But the market meltdown appears to be the last thing on the minds of Hochul and state lawmakers.
Deadlocked on possible changes (mainly additions) to her proposed $252 billion spending plan, their public comments suggest they aren’t focused on dollars and cents at all but on the many non-fiscal policy issues Hochul injected into her budget legislation.
It’s bad enough that Hochul and the Legislature are whistling in the dark about likely federal budget cuts.
Given a chance to anticipate likely changes affecting the state’s gigantic and nearly out-of-control Medicaid program, they’ve instead made it clear they’ll wait to see what happens — and then come back later in the fiscal year to deal with the consequences, if necessary.
Failing to lower their sights in response to the tariff turmoil is even less defensible.
Hochul certainly is entitled to denounce Trump’s tariff policy, which she was quick to do last week.
But that doesn’t absolve her of her duty to manage the budget for which she, after all, is ultimately responsible.
Her failure to decisively adjust her budget plan is a colossal lapse of leadership.
E.J. McMahon is an adjunct fellow at the Manhattan Institute. Adapted from his Ever Upward Substack.