Don’t call Governor Kathy Hochul a grinch. Earlier this month, she announced a plan for an “inflation refund,” which would offer one-time payments of $500 for families earning less than $300,000 and $300 for individuals earning under $150,000. The $3 billion program, funded by excess sales tax revenue, is meant to help New Yorkers facing rising costs.
But will it?
Hochul’s proposal is a quick headline-grabber, not a real solution. Handing out one-time checks may sound good as temporary relief, but risks fueling inflation by giving people extra cash to spend without fixing deeper economic issues.
If the governor truly wanted to help, she’d focus on reforming the state’s outdated tax system—starting with indexing income taxes to inflation. From 2011 to 2016, New York indexed its tax brackets, ensuring they adjusted for inflation. Indexation would prevent inflation from taking away more of what New Yorkers earn. But the practice was left to sunset under Governor Cuomo, leaving taxpayers vulnerable to "bracket creep."
Here’s how bracket creep works: as inflation pushes wages higher, people get bumped into higher tax brackets, even though their purchasing power doesn’t increase. For lower-income New Yorkers, this can mean losing eligibility for critical assistance programs such as Food Stamps, overall worsening their financial situation.
This stealth tax hike happens automatically, without any input from voters or lawmakers. Over time, the problem compounds, as tax brackets lag further behind the real cost of living. Even small inflation increases can erode deductions and thresholds year after year.
The burden is especially heavy in New York, which had the nation’s highest combined state and local tax rate in 2022—15.9% of income, up from 14.1% in 2019. As costs rise, more and more New Yorkers are being pushed to the breaking point.
Encouragingly, the State Legislature has shown some interest in tackling inflation. Senate Bill S2960A proposes annually adjusting the income thresholds for senior citizen and disabled rent increase exemptions based on inflation, using a Consumer Price Index (CPI)—much like how income tax brackets were previously indexed. If enacted, this measure would be a step toward broader tax reforms and could help pave the way for reinstating income tax indexation.
Another major issue is the state’s outdated tax credits and deductions, which inflation has rendered almost meaningless. Many credits meant to help families, like those for childcare and education expenses, haven’t been updated in decades. Take the Household Tax Credit: it hasn’t been adjusted since 1986. Single filers earning under $28,000 are eligible for just $75, while married filers earning under $32,000 can receive $90, plus small amounts for dependents. Those numbers might have been helpful 40 years ago, but they barely make a dent today.
Indexing taxes to inflation, using a regional Consumer Price Index (CPI), would ensure that brackets, credits, and deductions keep up with New York’s skyrocketing cost of living—an approach already adopted by the federal government and many states. Unlike one-off payments that are quickly spent and forgotten, such reforms would provide steady relief over the long term, especially for lower-income households.
Tax reform would also incentivize work. Lower income tax rates mean every dollar earned goes further, putting more money into people’s pockets and boosting economic productivity. In contrast, Hochul’s checks might help her poll numbers, but they won’t solve New York’s economic problems.
Hochul’s “inflation refund” might score some political points, but it misses the mark. New Yorkers need more than a temporary handout—they need a tax system that keeps pace with inflation and supports families over the long haul. Real reform would make the state more affordable, competitive, and livable. It would also help stem the outmigration crisis, which continues to shrink the state’s tax base and make programs like this increasingly unsustainable.
This holiday season, New Yorkers deserve more than a gimmick from Kathy Hochul. They need real, lasting relief—and reforming the state’s tax code is the only way to deliver it.
