Hochul Proposes $6 Billion Spending Bump With No Tax Hikes

By Greg David, The City

Jan. 21, 2026

Spending by well-off consumers and booming Wall Street bonuses are allowing Gov. Kathy Hochul to propose a budget miracle.

The governor is planning on increasing spending on Medicaid and education, as well as new funding for child care. At the same time, she plans to absorb the first wave of federal aid cuts enacted by the Trump administration and the Republican Congress. And she says there is no need for a tax increase to do any of this.

But with two months to go before the budget adoption deadline of March 31, the tax fight between Hochul and Mayor Zohran Mamdani is far from over.

Mamdani continues to call for tax increases on the wealthy and on corporations, pointing out that while the state may be in good fiscal shape, the city is not. In a statement released shortly after Hochul’s budget presentation, Mamdani pointed to the city comptroller’s estimate that the city faces a cumulative gap for more than $12 billion in the current budget and the next one.

“It is time to ask New York City’s wealthiest and large corporations to pay their fair share, while also working toward a fiscal relationship with the state that better reflects New York City’s status as the economic engine of the state,” he said.

Hochul’s view is very different.

“We have seen an unprecedented and unexpected increase in revenues to the tune of $17 billion, so we can use them to support our generous safety program,” she said in a press conference following her budget speech. She also suggested the city will have more revenue when the mayor presents his first budget in early February.

“I understand the calls [for higher taxes], and the mayor knows we will help him with his challenges,” she said.

The governor’s budget proposal calls for spending $260 billion in the fiscal year beginning April 1, a $6 billion increase from the previous year.

State operating funds grew almost 6% to offset a decline of $10 billion in federal aid, and Medicaid spending increased by $3 billion to cover money lost due to federal spending cuts.

The overall jump in Medicaid is more than 11%, with school aid increasing 4%. Child care spending, as announced last week, shoots up by $1.7 billion to more than $4 billion, with the state covering the first two-years of the rollout of childcare for two-years, a key to the mayor’s plan for universal free child care.

The $17 billion in new revenue refers to higher estimates of tax collections in the 2026 budget and the next three years. To emphasize the state’s fiscal health, the governor pointed to reserves of $14.6 billion and a reduction in the projected deficits in the 2028 and 2029 budgets by almost $8 billion.

While absorbing some federal aid cuts to Medicaid, the governor said little about the impact of other federal aid cuts. For example, the Fiscal Policy Institute estimates that New York will eventually need to spend as much as $2.1 billion more annually to make up for federal cuts to SNAP, but Hochul’s budget adds just $120 million in aid to food banks this upcoming fiscal year.

And with the economic outlook murky, fiscal watchdogs say that currently rosy revenue projections won’t necessarily bear out.

“We have a progressive tax structure that is volatile,” said Andrew Rein, president of the Citizens Budget Commission. “We are seeing the benefits now, but at some point there will be a recession. We should be putting some of the money aside for a recession reserve.”

Last week, Hochul said she opposed increasing taxes just for the sake of increasing taxes. In her speech Tuesday she added, “We already have the most progressive tax structure in the country.” That tax structure results in a windfall when higher-income consumers spend and Wall Street is profitable, she noted.

New York’s top income tax rate is the third highest in the nation at 10.9%, and the top combined income tax rate in New York City jumps to over 14.7%, almost two percentage points higher than California’s top rate.

The governor did propose extending the 7.25% top corporate tax rate for three years and notes that combined state, city and MTA taxes bring the rate for city-based businesses to 17.5%, again the highest in the nation.

Following the governor’s address, progressive groups like the Fiscal Policy Institute, the Mamdani-allied Our Time for Affordable New York and the Working Families Party immediately reiterated their calls for tax increases.

“New York State is home to over one hundred billionaires, each of whom got an obscene tax cut from Donald Trump just last year. Any state budget that does not make the ultra-wealthy pay what they owe is not good enough,” said Divya Sundaram, Our Time’s deputy director.

Meanwhile, business groups backed the governor.

“What I’m hearing from Partnership for New York City CEOs is clear that the governor’s budget is seen as responsible and pragmatic for a fragile moment, including backing her resistance to broad new tax hikes and strong engagement on child care expansion,” said Steven Fulop, the former Jersey City mayor and the new chief executive of the Partnership.

Despite his call for higher taxes, it isn’t clear how hard Mamdani intends to fight for them with unnamed members of his administration telling the New York Times he wouldn’t push the proposal this year.

This press release was produced by The City. The views expressed here are the author’s own.