Trump's 'Big Beautiful' Bill and Its Impact on NYC

New York's Response to the Federal Tax and Spending Bill

New York’s political leaders have expressed strong opposition to the Republican tax and spending bill, yet they have not taken significant steps to prepare for the potential loss of billions of dollars in federal aid. With President Donald Trump having signed the bill into law, state and city officials now face the challenge of dealing with its consequences.

The legislation creates a significant financial gap in the current state budget by reducing federal Medicaid funding. This cut is expected to require Governor Kathy Hochul to call for a special legislative session in the coming months. The impact becomes even more pronounced in next year’s budget, which must be finalized by March 31 as the governor and legislators prepare for their reelection campaigns.

State officials will need to develop a system to implement the new work and eligibility rules mandated by the federal law. They will also need to decide whether to maintain as many people as possible on Medicaid and SNAP food benefits or allow enrollment to decline to ease budget pressures.

While the immediate impact on the city may be less severe, Mayor Eric Adams and the City Council will eventually face difficult choices about filling gaps in the safety net created by the GOP bill or reducing aid to poor New Yorkers. So far, Governor Hochul, Mayor Adams, and other top officials have provided little indication of their plans. However, various groups are already taking sides on how to address the issue.

The progressive Fiscal Policy Institute has called for tax increases, arguing that the new federal budget legislation signals a shift in fiscal policy where states will bear a larger share of social spending. Executive Director Nathan Gusdorf emphasized the need for creative financing solutions to prevent food and housing insecurity, which would require additional revenue measures.

On the other hand, the conservative Empire Center suggests that New York is well-positioned to absorb the financial blow through better management of existing resources without catastrophic consequences. Health care expert Bill Hammond pointed out that New York has one of the most well-financed health care systems in the U.S., with government support increasing by $36 billion over the last four years.

The situation is particularly challenging because both the state and city increased spending far more than the rate of inflation in current budgets without setting aside funds to offset cuts in federal aid. The final budget signed by Governor Hochul increased overall spending by 12% excluding federal aid, which is three times the rate of inflation. Additionally, Hochul agreed to spend $7 billion to eliminate a debt the state owed the federal government for unemployment insurance, which reduced the state’s reserves by a third.

The city budget adopted at the end of the month increased spending by almost 8% when adjusted for various financial gimmicks, twice the rate of inflation. The mayor and Council also rejected pleas to increase reserves from the current level of $8.5 billion, an amount that has remained unchanged for several years.

One of the state’s biggest problems lies in how it uses federal money to pay for Medicaid and the state’s Essential Plan, which covers people who make slightly too much to qualify for the Affordable Care Act. Under the Republican law, New York will lose $7.5 billion used to cover legal immigrants in the Essential Plan, which is almost entirely funded by the federal government. The state will then have to transfer many of those individuals to Medicaid, which will cost an additional $2.7 billion since federal aid for Medicaid only covers about 56% of the actual costs.

Over the next several years, the law phases in a provision that will eventually cost the state another $1.5 billion by eliminating a complicated maneuver that taxes health care providers to generate more federal funds. Federal aid for food assistance, known as SNAP, had been expected to decline by almost $3 billion for New York state. However, a last-minute maneuver to secure the vote of Alaskan Republican Senator Lisa Murkowski could delay those cuts.

New York will also need to immediately build a system to verify twice a year that Medicaid and SNAP recipients remain eligible by meeting new work requirements. The Hochul Administration estimates the cost at $500 million a year. The more important question is what the goal of this system will be. Republican assumptions about savings are based on the theory that the result will be a decline in recipients, increasing the number of uninsured New Yorkers by 1.5 million, according to Hochul.

Organizations like Public Health Systems, which helps people sign up for Medicaid among other services, will work to ensure as many people remain qualified as possible. A survey conducted by Public Health Systems found that 71% of New Yorkers with a household income of less than $60,000 would be unable to keep insurance, and 64% said they would be unable to maintain their doctor visits.

Because of the last-minute change on SNAP benefits, the city may not need to immediately decide if it is going to increase food assistance, although other Trump budget cuts have added burdens to the city’s food banks. The threat to the city lies in the next budget proposal for the fiscal year beginning October 1, which would reduce housing aid by 43% or almost half the $13 billion the state receives annually—virtually all of which is passed along to local governments. It would also put a two-year time limit on the use of vouchers used by 125,000 householders in the city. The city government will come under tremendous pressure to cover those costs if the Trump plan is enacted.

The nine New York Republican representatives in the House all voted in favor of both the original House legislation and the Senate version that became law, calculating that they will be able to argue that the tax cuts benefit far more New Yorkers than those who might lose benefits. Representative Mike Lawler (R-Rockland County) stated that the legislation delivered on the promise to stop the single largest tax hike in American history and put more money back in the pockets of Americans.

The new law preserves tax cuts originally enacted in Trump’s first term and adds new ones for overtime, tips, and seniors. Those increases, however, expire in 2028 at the end of Trump’s current term. The biggest victory for New York state Republicans was securing an increase to the cap on deducting state and local taxes (SALT), from $10,000 to $40,000, although it phases out for anyone with income over $500,000. The most likely winners are suburban upper middle class couples with high property taxes and mortgage interest deductions.

However, the bill will raise taxes for some New York business executives by an additional $2.7 billion, according to a study from city Comptroller Brad Lander by outlawing a “pass through” maneuver that effectively restored SALT deductions for business owners and partners. An early analysis of the Senate bill from the left-leaning Institute on Taxation and Economy Policy said the law will reduce federal income taxes for New Yorkers by $30 billion a year, with 70% of the savings going to the top 20% of New Yorkers by income.

That’s why the state can increase taxes, said Gusdorf, since federal tax cuts will offset any increase in state or local levies. It may be months before the full scope of the law is clear with its scores of provisions including $2 billion to hire and train more immigration enforcement agents, new Trump accounts where the federal government will deposit $1,000 in an account for every newborn, and a $10,000 deduction for interest paid on loans to purchase American-made cars, to name just three.

But there is no time to lose, say those who watch state and city budgets. Ana Champeny, research director of the Citizens Budget Commission, said: “Since these cuts will phase in over time, the smart choice is to take the time to assess the impact, prioritize programs based on impact, scope, and New Yorkers’ needs, and reallocate money to preserve the most critical programs.” She adds a warning: “This is not the last of the cuts. More will come in next year’s federal discretionary budget starting October.”

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