Albany Risks Sending Our Best Startups to Other States

New York's success depends on the state remaining a vibrant and viable home for entrepreneurs, innovators, and future builders. Albany is currently putting that promise at risk.

State leaders are considering a change that would tax gains from Qualified Small Business Stock (QSBS) at the state level, even though those gains are federally exempt. On paper, this looks like a targeted way to raise revenue. In practice, it risks chasing away one of the state’s most important growth sectors.

This federal tax provision allows founders, early employees, and investors in certain startups to exclude up to 100% of capital gains from federal taxes if they hold shares for at least five years. Today, New York generally follows that treatment, meaning those gains are also exempt at the state level. A proposal under consideration would change that. The immediate effect would be to impose a state and city tax of up to 14% on startup exits for founders who built for the long run, making New York less competitive with other states that incentivize investment in early-stage companies.

If passed, the State Senate's QSBS proposal won't actually raise meaningful revenue. Instead, it will be a costly error that sends the wrong signal to the founders and investors we need in New York.

Before considering the merits of this tax increase, it's important to note that New York already operates one of the largest state budgets in the country, two times the size of Florida, despite having a similar population. While New York’s population has barely budged over the last two decades, the state budget has more than doubled to more than $250 billion, far outpacing inflation. Before leaders in Albany consider further tax increases, they should take a hard look at how we currently invest these vast resources, identify cost savings, deliver better outcomes, and improve their own fiscal stewardship to sustain vital public services.

Second, this proposal is projected to raise roughly $152 million annually. This is a negligible share of total state revenue, but it will have a devastating impact on New York's reputation in the wider startup ecosystem. At a time when Texas and Florida are embracing entrepreneurs with open arms, this move will signal to founders and investors that New York is hostile to startups. In fact, innovators wouldn't even have to board a plane to find a more welcoming home — they could simply cross the Hudson River into New Jersey, which this year aligned with federal QSBS rules to boost its own economic competitiveness. New York has never been a state that takes kindly to losing — especially not to our friends in New Jersey.

Finally, it is worth being clear about who will be affected. QSBS isn’t just a benefit for large investors. It matters to founders who take career risks, employees who accept equity instead of salary, and early backers who fund companies before they are proven. Those with the most resources will find ways to adapt. Those who are deeply rooted in New York are more likely to bear the cost or move to other states more hospitable to innovation.

New York needs these young, bold, risk-taking founders and future builders. As AI transforms the future of work, we need to do more to attract the next generation of talent, not chase it away with bad policies. Actions in Albany shape perception, and perception shapes behavior. If the goal for state leaders is long-term fiscal strength, the path is straightforward: grow the number of companies, workers, and investors generating income and creating jobs in New York. Grow the tax base, not the tax rates.

New York has built a powerful innovation economy over the past several decades. We shouldn't let short-sighted fiscal decisions derail that for the future.