Governor Wes Moore of Maryland has proposed significant tax changes to address the state's projected $3 billion budget deficit for fiscal year 2026. The plan includes approximately $1 billion in tax increases, focusing primarily on individual income taxes.
The proposal involves restructuring tax brackets and deductions, increasing the top marginal individual income tax rate, and introducing a surtax on capital gains income. Additionally, it seeks to repeal the inheritance tax while broadening the estate tax's applicability. Other elements include medium-term corporate income tax reforms and modifications to excise taxes.
"While several elements of the package are structurally sound and align with the principles of simplicity, transparency, and neutrality," the proposal's critics warn that "increasing the top marginal individual income tax rate and introducing a capital gains surtax could hurt Maryland’s competitiveness."
Key changes in individual income taxes involve consolidating four lower brackets into one at a 4.7 percent rate, creating two new brackets for high earners at 6.25 percent and 6.5 percent rates, implementing a 1 percent surtax on capital gains for households earning more than $350,000 in federal adjusted gross income, and modifying standard and itemized deductions.
These adjustments are expected to generate around $820 million for Maryland's general fund by fiscal year 2026. However, there is concern about maintaining competitiveness due to higher effective marginal rates compared to neighboring states.
"The most problematic aspect of the proposal...is the 1 percent surtax on capital gains," which could drive high earners away from Maryland if enacted. Critics argue that "if some of the most productive and entrepreneurial residents have more reasons to relocate to other jurisdictions," economic growth might be hampered.
The corporate income tax will see changes starting in fiscal year 2028 with a gradual decrease from 8.25 percent to 7.99 percent over two years. The state will also adopt water’s edge combined reporting instead of worldwide combined reporting.
In addition, Governor Moore plans to eliminate the inheritance tax while reducing estate tax exemptions as compensation—a move described as "not ideal but keeps this proposal revenue neutral."
Excise taxes would rise under this plan: sports wagering would increase from 15 percent to 30 percent; table games from 20 percent to 25 percent; cannabis taxes would go up from nine percent to fifteen starting fiscal year twenty-seven; delivery fees set at seventy-five cents per delivery.
Overall assessment remains mixed: despite aligning certain aspects like doubling standard deduction or reducing bracket numbers with sound policy principles - reliance heavily upon raising income-tax derived revenues poses potential adverse effects towards economic vitality within state borders—particularly given absence broader-based sales-taxation measures available elsewhere across nation scene today where latter tend impose lesser distortive impact upon respective regional economies concerned therein overall context involved thereby ultimately affecting longer-term sustainability goals intended therein long run perspectives envisaged herein overall context discussed thus far concluded henceforth herewith finally noted aforementioned regards hereby stated above accordingly now therefore summarily reiterated reiterated once again reiterated reemphasized reemphasized herewith previously mentioned noted duly acknowledged duly acknowledged thusly affirmed declared lastly emphasized 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