Governor proposes Maryland income tax overhaul amid significant budget cuts across programs

The Maryland General Assembly's Education, Natural Resources, and Transportation (ENT) Committee convened on January 30, 2025, to discuss significant budgetary changes impacting various sectors, including education and developmental disabilities.

A major point of discussion was the substantial funding cuts to the University System of Maryland, which is set to receive $106 million less in fiscal year 2026 compared to fiscal year 2025. This reduction raises concerns about potential tuition hikes or cuts to planned spending as the university system seeks to address the financial shortfall.

The committee also highlighted cuts in the developmental disabilities sector, where a significant deficit has been addressed through a combination of additional funding and general fund cuts. In fiscal year 2026, the budget for developmental disabilities will face a reduction of $235 million, aimed at slowing the growth of the program.

Conversely, the Medicaid program is expected to see an increase in funding, attributed to revised assumptions regarding enrollment and medical costs. Additionally, the governor's economic stimulus plan includes approximately $187 million in discretionary enhancements, aimed at stimulating Maryland's sluggish job growth.

The meeting also covered proposed changes to the state’s income tax structure. The governor's plan includes a modest tax cut for many taxpayers, with a standardized rate of 4.70% for income up to $100,000. However, new higher tax brackets will be introduced for high earners, with rates increasing to 6.25% and 6.5% for incomes exceeding $500,000 and $1 million, respectively. A temporary 1% capital gains surcharge will also be applied to individuals with taxable incomes over $350,000.

Furthermore, the proposal aims to double the standard deduction while eliminating the option to itemize deductions on Maryland taxes, which could lead to increased taxable income for some households. This change is expected to affect around 23% of Maryland taxpayers who currently itemize.

The discussions during the ENT Committee session underscore the challenges facing Maryland's budget, particularly in education and social services, while also outlining the governor's strategies for economic growth through tax reform and stimulus measures. The committee's findings will play a crucial role in shaping the state's fiscal policies moving forward.