After months of grappling with an uncertain economy shaken by the loss of federal jobs and grants, the Maryland General Assembly is finally poised to pass a budget Monday that cuts about $2 billion in spending while overhauling the state’s income tax policy and creating several new taxes and fees to fill a more than $3 billion budget hole.
Most Marylanders will not see major changes to their income tax bills from the revisions first proposed by Gov. Wes Moore (D) in January. About 6 in 10 taxpayers will see a modest decrease on their tax bill, with an average savings of $43, according to an analysis by the Board of Revenue Estimates. A little over one-third of taxpayers will see no change. And just under 6 percent of taxpayers — largely those who make $500,000 or more a year — will see an average increase of $1,849.
The budget also creates a new 2 percent surcharge on capital gains, higher vehicle fees, a new $5 fee on tires that will boost the state’s Transportation Trust Fund, higher taxes on cannabis and sports betting, and a 3 percent tax on technology services. The Tech Tax has exemptions for cybersecurity companies, quantum-computing companies and intellectual-property services — key industries that the governor has identified as growth areas for the state’s economy.
All of those tax and fee changes will net the state about $1.6 billion in revenue, legislative leaders said on Friday.
“We’ve made sure our core programs are solid and funded,” said Del. Ben Barnes (D-Prince George’s), chair of the House Appropriations Committee. “We know we have to take cuts and we took about $2 billion in cuts, but we also raised the revenue to make sure our core values are protected.”
Even with the deep cuts, lawmakers restored funding for some key priorities, including education restructuring and disability services. Barnes said the budget cuts thread the needle “between doing what is hard and doing what is intolerable” in a Democratic-controlled state that is uniquely at risk from the federal job and funding cuts coming out of the Trump administration.
Sen. Guy Guzzone (D-Howard) also emphasized how the budget agreement reflects the state’s values.
“We protected some of the things that are most dear to us,” Guzzone, who chairs the Senate Budget and Taxation Committee, said after a panel of legislative leaders finalized the budget. “We decided it was in the state’s interest to work together, and we did that.”
Democratic leaders in both chambers agreed to a budget plan in conference committee on Friday, setting up lawmakers to take final votes on the last day of the 90-day legislative session. The bill resolved some differences between lawmakers in the house and senate over education cuts, the transportation budget, triggers that force the state to revisit the budget and a new 3 percent tax on technology services that has been labeled the “Tech Tax.”
Republicans in Annapolis, who are in the minority, pressed for a budget with more cuts and less new revenue.
“You cannot tax your way to prosperity,” Senate Minority Leader Stephen S. Hershey Jr. (R-Queen Anne’s) said during floor debate over the budget on Tuesday. “And that’s what this budget does.”
Moore’s original tax plan would have cost some low- and middle-income Marylanders more, because it eliminated itemized deductions for all income brackets. Lawmakers amended that proposal to phase out itemized deductions among those who make more than $200,000 a year, so that those who make more are eligible for fewer deductions.
That change shifted more of the tax burden to a small number of high-income taxpayers, many of whom report volatile nonwage income, according to analysts at the Board of Revenue Estimates.
“Accordingly, State income tax revenues will increase more in good years and grow more slowly or decline by a greater amount in recessions and/or stock market corrections,” the board said in a report published last month. The report also noted that the state is facing “very uncertain economic circumstances” because of actions taken by the Trump administration.