Tax cuts, increases part of Moore’s ‘growth agenda’

Gov. Wes Moore (D) said his budget proposal, which includes tax cuts for many Marylanders and increases for others, solves a $3 billion projected deficit. (Photo by Bryan P. Sears/Maryland Matters)

Gov. Wes Moore Wednesday proposed a budget he said will promote long-term economic growth and provide tax cuts to many, but it will be  balanced on tax increases on high-income earners in the state.

Moore’s proposed $67.3 billion spending plan — a 1% increase compared to the current year — includes $2 billion in cuts and efficiencies to help close projected $3 billion deficit in fiscal 2026. At the same time, it will offer a tax break he hopes will “energize” the state economy.

All of the moves, the governor said, are made with an eye toward needed economic growth in a state where the post-pandemic economy continues to falter. The projected $3 billion budget gap for fiscal 2026 could grow to more than $6 billion by fiscal 2030 if no action is taken, analysts have said.

“We need to grow,” Moore said during a Wednesday news conference. ” Growth is the answer.”

Maryland Budget Secretary Helene Grady said the administration’s proposal “flips” the projected $3 billion shortfall into a projected $106 million positive balance at the end of fiscal 2026. It also reduces overall spending in the state’s general fund budget to $27 billion — a decrease of $274 million or 1% from the current year.

The governor’s proposal includes $2 billion in cuts and efficiencies. Moore will also use about $500 million from the Rainy Day Fund, which leaves more than $2 billion in the account or about 8% of revenues — more than the 7.5% recommended by a legislative spending panel in December and well above the 5% balance required by law.

Those actions leave a roughly $1 billion deficit that will mostly be covered by a restructuring of the state tax code.

“The problem hasn’t been that working Marylanders are not contributing,” Moore said in an interview. “It’s one of the reasons why we’ve given two-thirds of all Marylanders a tax cut.”

He said a proposal to cut the corporate tax rate would help attract businesses to the state. Moore also touted a proposed elimination of the inheritance tax, and the fact that his administration was able to hold the line on the state’s sales and property taxes.

Maryland has not touched the sales tax since it was raised from 5% to 6% in 2008, and the tax rate for properties other than utilities has remained at 11.2 cents per $100 for nearly two decades.

For the most part, Democrats in the legislature praised the plan.

“We appreciate that the governor’s budget takes steps to solve the structural deficit with revenues not just cuts,” House Appropriations Chair Ben Barnes (D-Prince George’s and Anne Arundel) said in a statement. “The problem before us is one the House saw coming last year and we proposed long-term solutions then. We are going to work with the governor to uphold our commitment to lower the cost of living for Marylanders.”

Barnes and his committee will get a first crack at the budget this year before sending it to the Senate.

Senate Budget and Taxation Committee Chair Sen. Guy Guzzone (D-Howard) called Moore’s proposal “thoughtful.”

“There are a few parts that I know that will cause some concern to some of our members,” Guzzone said during a meeting with reporters. “We’re going to work through those just like we do every year.”

Among those concerns are cuts to the Developmental Disabilities Administration and for crime victims.

Republican reaction ranged from praise for a focus on growth to opposition to tax increases. A small group of hard-line conservatives had harsh words for the proposal.

“Maryland families will face additional fees on grocery and Amazon deliveries, as well as higher emission inspection fees, further increasing the already high cost of living in the state,” the House Freedom Caucus said in a statement. “This budget isn’t balanced—it’s a deceptive scheme dressed up as reform that shifts the burden onto average residents.

“Marylanders will reject this plan. They deserve real relief, not a gaslighting budget designed to mislead and overburden families,” the caucus statement said.

Republicans make up less than one-third of the 188-member General Assembly.

The “growth agenda”

Moore talked as much about the budget’s spending as its cut, including a proposed $128 million in targeted spending on “industries of the future.”

That includes $27.5 million for a joint venture with IonQ, a cutting-edge computing technology firm and $15 million to redevelop a 168-acre parcel at Tradepoint Atlantic into a container terminal, a project expected to attract $1 billion in private investment. It also includes $25 million for the state’s “sunny day” fund, focused on attracting businesses to the state — the state used that fund in 2016 to provide forgivable loans to Northrop Grumman in what was the largest deal of its kind in the history of the state.

Money for the initiative comes from a proposed 1% surcharge on capital gains for households earning more than $350,000 annually. The administration proposed a  sunset provision to end that tax after four years.

Moore also called for reducing the state’s corporate tax rate from 8.25% to 7.99% over a two-year period. The reduction would be “beginning of fiscal 2028 commensurate with closing the combined reporting loophole,” Grady said.

Moore proposes tax cuts, increases

Moore said his plan targets tax relief to low- and middle-income families with an eye toward growing the state economy and solving a crippling budget deficit. Grady said the aerage family would see a tax reduction of about $173, money that Moore said they would use “to continue to energize Maryland’s economy.”

“They’re going to go and buy things for their families. They’re going to go out and maybe spend an evening out,” Moore said in an interview with Maryland Matters. “They’re going to go out and maybe take a vacation in our state. They’re going to go out and do things. That’s going to continue to harness a measure of activity for both small businesses within the state and the entities that call the state of Maryland home.”

The plan would eliminate itemized deductions on state income taxes, but double the standard deduction. It would also compress the lowest four tiers of taxpayers and create two new upper-income tax brackets: Individuals earning $500,000 would pay 6.25% and those earning $1 million or more would pay 6.5%%

Grady said the state would raise more than $800 million from what some Republicans were already callingd “the half-millionaire’s tax.”

Senate Minority Leader Sen. Stephen S. Hershey Jr. (R-Upper Shore) said raising the tax on high-income earners could drive people out of the state.

“There are states south of us that have much better tax climates, and it is not too difficult for people that have the means to be able to leave Maryland because of tax policies, and move to other states,” Hershey said. “So, it’s very concerning, because a lot of times those individuals bring jobs with them, and we again want to make sure that if we’re making some efforts to stimulate the economy, we’re also not seeing a negative result and losing jobs as a result of the budget too.”

The budget’s plan for combined reporting and capital gains surcharges pull, in part, from last year’s Fair Share Act, which had the support of House Democrats but stalled in the Senate.

Benjamin Orr, president and CEO of the Maryland Center on Economic Policy, said Moore’s proposals would “create equity and fairness” in the state’s tax structure.

“Maryland’s tax system has been upside down with working families bearing too much of the responsibility for funding public services,” Orr said in a statement. “Gov. Wes Moore’s proposed budget moves toward righting how we pay for what we value in our state and communities.”

The plan also met with the approval of House progressives who have previously backed parts of Moore’s proposal. Del. Vaughn Stewart (D-Montgomery) said he and other House progressives are pleased the governor is keeping struggling Marylanders top of mind in his budget.

“The Democratic Party should be a party that prioritizes the needs of working people over more successful people,” he said. “We have a structural deficit — are we going to balance it on the backs of people who have been struggling to afford their basis needs? Or are we going to do it on the backs of people who have gotten more wealthy, even during the pandemic?”

Transportation gets a revenue bump

The budget calls for $420 million in new revenue to bolster the state’s flagging Transportation Trust Fund. Transportation Secretary Paul Wiedefeld said that funding will allow the state to leverage federal funds and add $695 million annually to transportation needs.

That includes seeking federal funding to improve Baltimore City’s light rail, beginning work on highway safety projects on Interstate 81 and Route 15 in Western Maryland, and continuing work on the Route 90 Bridge in Worcester County.

“We were going to basically have to defer any planning, environmental, and utility work projects across the state, so that allows us to move that project back into that phase of development over at (Route) 90 so it will be back in from that perspective,” Wiedefeld said.

The transportation proposal would be funded through a 75-cent fee on retail deliveries that would only be imposed on companies with annual earnings of $500,000 or more “so you’re not impacting small businesses.”

Among other revenues that would be dedicated to transportation, Wiedefeld is seeking a reduction in the trade-in allowance on vehicle purchases. Currently, if a motorist has a $10,000 trade-in on a $50,000 car, the tax is figured on $40,000. Wiedefeld wants to limit that allowance to car sales costing no more than $15,000.

The department will also seek permission to impose a surcharge on motorists who opt to pay their registration fees annually instead of every two years. When lawmakers last year imposed new registration fees on electric vehicles and higher fees on gas-powered vehicles, they allowed owners to pay once for the two-year renewal or divide it over two years.

Guzzone, the Senate budget chair, said the intent was to ease imposition of the fee on motorists and that he is “uncomfortable” with the surcharge plan. He told Maryland Matters he is considering a proposal to do away with the two-year option altogether.

Tough pill to swallow

Moore repeatedly stressed a need for a deficit solution that included a tough look at government spending.

“We need to rein in spending,” he said.”We need to tighten our belts. We need to spend wisely.”

Included in those cuts are $50 million in “efficiencies” in state fleet and real estate management, information technology. The state will also trim more than $100 million from the University System of Maryland, which Grady said has seen “significant growth in state funding” since fiscal 2022.

“It is not sustainable for the general fund to continue to support these levels of growth going forward, and we are proposing just a slight bending of the cost curve next year that we believe is fair and reasonable for the institutions to manage,” Grady said.

Moore’s plan also relies on pulling money from reserve funds. He would double money earmarked for climate change, to $180 million, with funding from the Strategic Energy Initiative Fund. That fund would also be used to offset expenses including rising Medicaid costs.

The budget would cap enrollment in the expanded child care subsidy program, which offers financial assistance for more than 43,000 children. The program has grown exponentially, and administration officials said that in addition to a freeze on enrollment, the state will also prioritize aid to low-income families and those in job-training programs.

Possibly the hardest pill to swallow is a proposal to cut millions from the Developmental Disabilities Administration, which provides support and services to help those with disabilities go about their day-to-day lives. Grady said spending “has grown significantly from $850 million in fiscal 2023 to nearly $1.5 billion over just two years.”

The fiscal 2026 budget calls for a $200 million reduction in DDA funding, which Grady characterized as “cost containment” that would bring the agency’s budget back to fiscal 2024 levels. She said it was “one of the most difficult proposals in the budget.”

Guzzone told reporters Wednesday that some senators will likely struggle with those cuts and others to programs helping crime victims.

“We’ll look at those very carefully,” he said. “We know how important that is to a number of constituencies, and we’ll do our very best to see if we can help accommodate some of those cuts.”

The Maryland Developmental Disabilities Coalition said the cuts would be devastating to Marylanders with disabilities.

“While we appreciate the thoughtfulness behind these deliberations … we are deeply concerned about the extensive proposed budget cuts that threaten vital services for people with disabilities and their families,” according to a statement Wednesday. “The proposed FY 26 budget, combined with proposed cuts to the current year operating budget, will devastate supports for Marylanders with developmental disabilities, and impact family stability, and the Direct Support Professional workforce that has never fully recovered from the COVID-19 pandemic, with continuing healthcare staffing shortages.”

Mat Rice, executive director for People on the Go of Maryland, said in a statement that a $200 million cut would “risk turning back the clock on the civil rights gains that Marylanders with disabilities have made due to access to community supports.”

Moore taps hospitals and health insurers for $100 million

The governor’s proposal would increase the Maryland Deficit Assessment fund and charge Maryland hospitals and health more to help fund Medicaid, the joint federal-state health care plan for low-income households and other vulnerable populations.

Maryland’s hospitals and insurance companies already collectively contribute hundreds of millions to the fund, according to documents from the Maryland Health Services Cost Review Commission. Moore’s proposal taps hospitals and insurer for an additional $100 million in both the current budget year and in fiscal 2026.

The Maryland Hospital Association did not provide an immediate opinion what the proposed increases to the deficit assessment means for the association, but it appears to have resisted asserssment increases in past budgets under the previous CEO.

“We received the Governor’s budget but haven’t had time to discuss it with our members,” hospital association spokesperson Amy Goodwin said in an email Wednesday.