New York faces a projected $34.3 billion cumulative budget gap through 2029, and federal funding, nearly 39% of the state budget, is shrinking. Every dollar that supports classrooms, subways, public hospitals, and basic services matters more than ever.
As tax filing season begins, millions of New Yorkers will file returns, trusting the IRS with their addresses, income, and family information. Tax return confidentiality is a bedrock legal norm with limited exceptions. But this year, that trust is fractured.
In April 2025, the Treasury Department signed an unprecedented agreement allowing ICE to request taxpayer data for immigration enforcement, despite objections from senior IRS officials. A judge temporarily blocked the arrangement in November, warning it would chill filings, but not before the IRS disclosed tens of thousands of taxpayer addresses. And since May, 250 IRS criminal investigators have been pulled into immigration enforcement, helping with arrests and deportations rather than pursuing tax evasion by the wealthy. The human cost is devastating. The fiscal cost will follow.
Here’s the bottom line: when people are scared to file, and when enforcement against rich tax dodgers collapses, New York loses revenue from both ends at once. Undocumented immigrants pay about $3.1 billion a year in state and local income and sales taxes, despite receiving limited access to many public programs. Much of that revenue is concentrated in New York City, where foreign-born workers make up about 44% of the labor force. Those contributions are now at risk, from deportations that remove taxpayers entirely and from those who remain but stop filing out of fear. And for most taxpayers, federal and state returns are linked. When people stop filing with the IRS, they often stop filing with New York, too.
The data-sharing agreement is the newest, sharpest escalation, but the chilling effect extends far beyond it. Workplace raids, high-profile arrests, and intensifying enforcement tactics push people out of the tax system and into work that leaves fewer records. Once communities believe it isn’t safe to file, the impact spreads and it lingers. During the first Trump administration, tax filings using Individual Taxpayer Identification Numbers (ITINs) dropped sharply, with some communities reporting declines of 20%. For decades, the federal government encouraged immigrants to file taxes regardless of status, issuing ITINs specifically for that purpose. Now the Trump administration is using that compliance as a weapon.
The Budget Lab at Yale projects that the IRS-ICE data-sharing arrangement could reduce federal revenue by $147 billion to $479 billion over the next decade. The losses cascade downward. City and state income taxes depend on people filing returns and reporting wages; sales taxes depend on ordinary economic activity.
This is happening at the same time Washington is gutting the government’s capacity to enforce tax laws. DOGE cuts have reduced the IRS workforce by roughly a quarter and eliminated nearly a third of its auditors. Analysts project these cuts could cost over a trillion dollars in lost federal revenue over the next decade.
In New York, if even 10% of that $3.1 billion in immigrant tax contributions disappears, that’s roughly $300 million a year gone before Albany debates a single program. New York City is the most exposed because so much of the affected population and economic activity is concentrated there. When compliance drops and Albany’s revenues shrink, the city either backfills with local dollars it doesn’t have or watches services degrade.
And the U.S. already leaves enormous sums uncollected at the top. The IRS estimates a net tax gap of more than $606 billion for 2022, taxes legally owed but not paid. Treasury research suggests the top 1% alone evade about $160 billion annually. New York is home to some of the wealthiest people and most sophisticated financial arrangements in the country. When enforcement capacity at the IRS disappears, billionaires are allowed to keep hoarding their wealth.
So we’re building the worst of both worlds. We’re terrorizing tax-compliant immigrants while letting wealthy tax evaders sit comfortably out of reach. When the rich don’t pay what they owe, the rest of us make up the difference through higher taxes on working families, service cuts, or both.
Governor Hochul’s budget resists calls to raise taxes on the wealthy, even as she acknowledges the state’s dependence on Wall Street revenues. Albany will spend the coming months debating priorities as if the choices are purely local. They’re not. Washington’s assault on immigrants and tax administration will show up in New York’s revenues whether Albany plans for it or not.
Opponents will shout about wealthy residents fleeing, but most evidence suggests top earners move at lower rates than other income groups. Taxing the rich is the most responsible and durable fiscal strategy New York has left. Either the state responds to federal sabotage with fiscal seriousness, taxing concentrated wealth and protecting immigrant New Yorkers who already pay their share, or it accepts a quiet austerity regime where working families pay more for less while billionaires get a pass. The first option is harder politically. The second is harder on everyone else.
