Facing a projected $3 billion budget deficit in fiscal year 2026, with forecasts of a growing gap over the next five years, Governor Moore has included about $1 billion in proposed tax increases in his budget proposal. The package features changes to individual income taxes (such as restructuring tax brackets and deductions, increasing the top marginal individual income tax rate and introducing a surtax on capital gains income), the repeal of the inheritance tax offset by broader applicability of the estate tax, medium-term corporate income tax reforms, as well as modifications to excise taxes. While several elements of the package are structurally sound and align with the principles of simplicity, transparency and neutrality, increasing the top marginal individual income tax rate and introducing a capital gains surtax could hurt Maryland’s competitiveness, especially given the recent wave of tax reforms implemented in other states.
Regional competitiveness: If Governor Moore’s budget plan is passed, the combined marginal tax rate for high earners in Maryland would be one of the highest among neighbors, only 0.05 percentage points lower than Washington, D.C. and more than 4 percentage points higher than Pennsylvania, Virginia and West Virginia.
