Facing a projected $3 billion budget deficit in fiscal year 2026, with forecasts of a growing gap over the next five years, Governor Wes Moore (D) 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, and 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 wave of income tax reforms implemented in other states in recent years.
Individual Income Tax Changes
The most important revenue raisers in Governor Moore’s tax proposal are individual income tax provisions. Several structural changes are proposed, including the replacement of the four lowest tax brackets with a single 4.7 percent rate, two additional brackets for top earners (with rates of 6.25 percent and 6.5 percent), a 1 percent surtax on capital gains income for households earning more than $350,000 in federal adjusted gross income, and several modifications to standard and itemized deductions and tax credits.
According to the budget documents, these changes would generate close to $820 million for the state’s general fund in fiscal year 2026 ($691.5 million from the restructuring of brackets and deductions and $128 million from the temporary capital gains surtax).
Individual income tax rates and brackets under the current system and the proposed tax changes are shown in the table below. The number of tax brackets decreases from eight to seven, the top marginal tax rate increases by 0.75 percentage points (from 5.75 percent to 6.5 percent), and the four lowest brackets are consolidated into one. Additionally, the marriage penalty remains in the new system, perpetuating the unequal treatment of single filers and married couples filing jointly, favoring the former tax status.
Do not tax me into poverty !!!
When is enough enough? Its long past time the Eastern Shore get off this Democrat crazy train.