By Sam Janesch
Baltimore Sun
The barriers pushing back against serious discussions about tax increases in Maryland are — by some signs — starting to crack.
Lawmakers gearing up for the January kickoff of the annual session in Annapolis are contemplating a range of possibilities for how they’ll tackle a ballooning budget deficit that independent analysts recently pegged at $2.7 billion for the next fiscal year.
The behind-the-scenes discussions are still preliminary. But the budget outlook, worse than previously expected, has set the stage for a more robust debate than when the problem began last year and the Democratic supermajorities in the Maryland General Assembly split over when, if ever, to talk about new revenue ideas.
“Everything is on the table,” Senate President Bill Ferguson said in a recent statement after spending the 2024 session waving off ideas like higher personal and corporate income taxes that some of his fellow senators and House Democrats supported.
“Where we can, we will make cuts and adjustments to existing programs that are not achieving outcomes,” the Baltimore Democrat said. “We also will consider altering revenue policies so long as those changes keep our state competitive with the surrounding region. We must be targeted and purposeful in our approach. Marylanders deserve nothing less.”
Democratic Gov. Wes Moore — who has so far preferred to balance the budget through methods like cuts and tapping reserves — is also reviewing revenue ideas but still emphasizing a “high bar for increasing the tax burden on Maryland families” as he prepares to release a balanced budget plan in January.
“The governor knows the next leg of the mission to address our fiscal challenges will be harder than the last,” a spokesman said.
The problems are multifold — especially when considering a separate and depleted Transportation Trust Fund that has led to billions of dollars in planned cuts.
And the menu of options, though still unclear, will be long.
Where could the money come from?
Lawmakers finished the last 90-day session with a compromise that included raising tobacco taxes, which will go to the underfinanced Blueprint for Maryland’s Future education reform plan. It also included raising vehicle registration fees and creating a new ridesharing fee to cover part of the immediate transportation shortfall, raising about $2 billion over the next six years.
Other ideas were left on the chopping block.
A $1.3 billion package introduced by House Democrats featured the vehicle fees but also a measure to legalize and tax online gaming, with the goal of raising around $300 million annually. Another piece would have changed corporate taxes in a way they said would raise $225 million.
The latter, known as combined reporting, was also a key element of a separate plan pushed by a coalition of advocacy groups. The Fair Share for Maryland Act, they said, would have raised $1.6 billion by implementing combined reporting — which prevents companies that operate in multiple states from using shell companies to avoid paying taxes — as well as a 1% surtax on capital gains, an expansion to the estate tax and new tax brackets for households earning more than $250,000.
A third of the 102 House Democrats and just four of the 34 Senate Democrats signed on to the plan in 2024, though it’s expected to be introduced again in 2025.
“The Fair Share Maryland plan reforms the state’s upside-down tax system that currently gives unfair tax breaks to large corporations and the ultra-rich,” the advocacy coalition said in a statement. “Our state policies also allow the wealthiest 1% of households in Maryland to pay a smaller share of their income in taxes than anyone else. This puts the burden for public services on working families and our small businesses.”
Democrats have so far been more hesitant to target another major revenue source — the state’s 6% sales tax.
A bill introduced by House Majority Leader David Moon in the last session would have lowered the rate to 5% while expanding it to additional goods and services, raising up to $3 billion. Business owners and Republicans fiercely opposed the expansion — which would have impacted new areas like legal and financial services, veterinary services and car washes — in a hearing, though Moon emphasized he brought the idea to start a conversation rather than pass something immediately.
From gun sales to newly legalized cannabis products, lawmakers have targeted all kinds of other areas to fill budget gaps, both large and small.
Toll increases are likely to come up again after being tabled in 2024, as are other ways that lawmakers have described as more “creative” methods to fund transportation. One would implement a new 50-cent “retail delivery” fee on transactions for goods that are subject to the sales tax and delivered in the state, like Amazon purchases. Another would add fees to some larger personal vehicles that are considered more dangerous to pedestrians and harmful to roads.
Republicans have indicated they’ll push back against almost any revenue ideas.
“The question inevitably is, ‘How can we get more revenue?’ And that instantly means more taxes and fees,” said Jessica Haire, a Republican former Anne Arundel County councilmember who is leading a new anti-tax advocacy group called Opportunity Maryland. “The general public is going to be very unhappy with that.”
House Minority Leader Jason Buckel, an Allegany County Republican who has often applauded Moore for his self-imposed “high bar” on taxes, said he hopes the governor’s stance continues.
“He’s capable of seeing these realities and the question will be is he capable of persuading people in his own party in Annapolis to recognize that the pathway forward isn’t the tried and true, ‘Let’s just raise everyone’s taxes 10% and move on’?” Buckel said.