Is NY's plan to fund the MTA a tax hike or tax cut? Depends who you ask.

A political Rorschach test centered on New York state’s latest push to fund the MTA is coming to a campaign trail near you.

Gov. Kathy Hochul and other Democrats argue that for thousands of small businesses in the New York City area, the state budget passed earlier this month decreased a key tax that helps fund the public transit system. Republicans assert the Democrats actually increased that tax overall — to the tune of $1.4 billion a year.

They’re both right — and whether either side can sell voters on its point of view could have an effect on the governor’s race and state legislative contests in 2026 —particularly in the key political battleground of the New York City suburbs.

“It involves a tax cut for small businesses,” Hochul said Wednesday. “So if the Republicans want to criticize that, I don't think that's a good political strategy for them – not that I wanna give them free advice.”

The tax at the center of the debate is what’s known as the payroll mobility tax, or PMT. And since Democrats in the state Legislature voted to implement it in 2009 — only to lose their slim majority a year later — it’s been something of a political third rail.

It applies to most employers, including private businesses and many government entities, in New York City and seven suburban counties serviced by the MTA. Those with annual payrolls of about $1.2 million pay the tax, which is used to help fund the transit system.

Earlier this month, Hochul and the state Legislature — which, since 2019, has been back in firm Democratic control — approved a $254 billion state budget that included funding for the MTA’s $65 billion construction program. The capital plan, as its known, includes billions of dollars in much-needed repairs and upgrades designed to keep the bus and train systems from deteriorating further, and Hochul and lawmakers were under acute pressure to find a way to fund it.

The key piece was the $1.4 billion annual hike in the payroll tax, which the MTA will use to borrow additional funds to pay for its plan.

That hike left Republicans eager to pounce, particularly on Long Island and in the Hudson Valley, where the tax has long been deeply unpopular.

“I talk to the businesses in my district and they ask one question: When does it end?” said state Sen. Dean Murray, a Republican from East Patchogue. “Well, I have the answer. It ends in other states because that’s where our businesses are going to go.”

Hochul, on the other hand, thinks she was able to thread the needle in a way that will neutralize Republican attacks. She said she’s well aware that Republicans used the issue to their advantage in the 2010 elections, rallying small businesses to speak out against the tax as they picked up two key wins on Long Island. But this time, Hochul and Democratic lawmakers centered the tax hike only on big businesses with large payrolls — all while cutting the rate for lower-payroll businesses in half.

That means businesses with an annual payroll of about $10 million a year will pay more — 0.895% for those based in New York City and 0.635% for those in the suburbs, up from .6% and .34% respectively.

But those with annual payrolls of less than $1.5 million will pay less, while those who are self-employed and make less than $150,000 will be totally exempt; the previous cutoff was $50,000. The budget also eliminated the tax for government entities outside New York City, while the city’s rate remains unchanged.

It means that when Democrats like Hochul hit the campaign trail next year, they'll be able to say they cut the tax for small businesses, all while claiming credit for “saving” the MTA. That could be key for the governor, who lost Long Island to Republican Lee Zeldin — now the head of the Environmental Protection Agency — when she won a full term by a slim five-point margin in 2022.

“There's a direct correlation between the benefits derived by these large employers and taking the burden off of smaller employers,” Hochul said. “We structured it very thoughtfully to make sure that we're not hurting small businesses or individual employers.”

Republicans say they won’t let Democrats get away with that.

Overall, the payroll tax maneuvering is bringing in more money for the MTA. That means businesses, overall, will be paying more. Any way you spin it, that’s a tax hike, Republicans say.

State Sen. Jack Martins, a Mineola Republican, was first elected during that fateful 2010 election cycle, when he knocked off Democratic state Sen. Craig Johnson to help the GOP win a majority.

The MTA tax was a central part of his campaign 15 years ago. And he expects it will be again next year, too.

“ I think it's still potent,” he said. “I think the idea of a tax on jobs is something that resonates with people, certainly, as being counterproductive.”

Danny Pearlstein, a spokesperson for the Riders Alliance, a group that advocates for transit riders, said Hochul and Democrats deserve credit for voting in favor of the tax maneuver, which he said will help “fund public transit and keep fixing the subway system.”

“There's a myth in New York that the original payroll tax sank the Democratic Senate majority going back to 2010,” he said. “But in fact, President Obama at the time described the 2010 midterms as a shellacking (nationwide).”

The governor’s office and all 213 state legislative seats will be up for grabs in 2026, though Democrats currently hold a strong, two-thirds majority in both the state Senate and Assembly.