Maryland Gov. Wes Moore and General Assembly leaders reach budget deal

Washington Post

20-03-2025

Maryland Gov. Wes Moore (D) and Democratic leaders of the General Assembly on Thursday announced a deal to balance the state budget using a combination of deep cuts and new taxes to fill a more than $3 billion deficit.
After months of deliberating over tax reforms, spending cuts and new revenue sources, the governor and leaders of the Democratic-controlled state legislature presented a united front signaling that they have found an approach they can all agree on to balance the budget.
'No one up here wants to talk about cuts, no one wants to talk about revenue,' House Speaker Adrienne A. Jones (D-Baltimore County) said at a news conference Thursday afternoon. 'But responsibly governing means having the tough conversations. It means doing what is right, not just what is politically convenient.'
The state faces a budget hole deeper than any seen since the Great Recession, and the gap between revenue and spending has only widened in the first months of Donald Trump's second presidency. The White House's moves to fire federal workers, claw back federal grants and contracts, and downsize or move federal agencies out of the Washington region have threatened to upend Maryland's economy even more. The Comptroller's Office projected an additional $280 million in lost revenue in early March because of the changes within the federal government.
'We will never compromise, ever, on protecting Marylanders against any threat, no matter who makes it,' Moore said. 'And that's exactly what this budget delivers. This is a product of days and weeks and months of partnership.'
Lawmakers said they found an additional $500 million in cuts, though they also restored some of what the governor had proposed to slash from entities like the Developmental Disabilities Administration. In total, about $2.3 billion was lopped off of the state budget in cuts and fund transfers. The rest of the state's deficit will be filled with increased revenue coming from a combination of tax reforms, tax hikes, and new taxes and fees detailed in the Budget Reconciliation and Financing Act.
Although Democrats appear to be close to passing a balanced budget, Republican lawmakers, who are in the minority in the General Assembly, raised concerns over the majority's approach. Several Republicans in Annapolis said the state isn't treating the budget crisis like the financial emergency that it is and argued the state should be pursuing more drastic cost-cutting measures.
Dels. Kathy Szeliga (R-Baltimore County) and Robin L. Grammer Jr. (R-Baltimore County) suggested curbing departmental spending and foregoing new legislation this session that costs the state more money.
'These legislators are not taking this crisis seriously,' Szeliga said.
Below is a breakdown of what is in the deal reached by Democrats and what isn't.
Moore in January proposed an overhaul of the state's tax system that he said would make it more fair, modern and simple. The most significant changes to the income tax sought by the governor included two new income brackets for the state's highest earners and eliminating itemized deductions and doubling the standard deduction for all filers.
Lawmakers kept the governor's pitch for two new tax brackets for people making more than $500,000 and $1 million, with new rates of 6.25 percent and 6.5 percent, respectively. They also agreed to limit itemized deductions for high earners, while allowing low- and middle-income earners to continue itemizing. Their plan will phase out itemized deductions for people making over $200,000, so that the amount of itemized deductions allowed gets smaller as a taxpayer makes more money. The standardized deduction, meanwhile, will increase by 20 percent, which will slightly decrease tax bills for many filers.
The vast majority of Marylanders will either see a tax cut or no change in their tax bill, Moore said, though it was not clear how big those cuts would be. Nearly 6 in 10 Maryland taxpayers would see a lower tax bill, about the same as in Moore's original proposal. About 6 percent of taxpayers would see a tax increase, Moore said, largely concentrated among high earners.
The governor on Thursday said that he came into the legislative session with three guiding principles for the state's budget: reforming the state tax code without asking the middle class to pay more, growing the state's economy by making Maryland more business friendly, and investing in the state's people.
'This is what good governance looks like,' he said. 'It is responsible, and it takes every requirement that we laid out at the start of session.'
Democrats in the General Assembly said they plan to pass a 3 percent tax on data and internet technology services, including services like iCloud storage and web hosting services. That tax will raise about $500 million and apply to consumers and businesses. The proposal replaces a business-to-business services tax that received significant pushback from the business community over the past two weeks.
'As our economy increasingly becomes digital, this revenue expansion acknowledges the growing role of IT in our daily lives and business operations,' Senate President Bill Ferguson (D-Baltimore City) said at a news conference.
The budget consensus also includes a new 2 percent surcharge on capital gains, which will help shore up the state's transportation budget.
Some existing taxes and fees will go up. Legislative leaders agreed to implement the governor's plan to raise taxes on cannabis sales from 9 percent to 12 percent and sports betting from 15 percent to 20 percent.
House lawmakers are proposing several vehicle-related fees to boost the state's transportation trust fund, though that new revenue is not part of the budget deal announced Thursday and will need to be negotiated. Under the House plan, fees for the Vehicle Emissions Inspection Program go up to a maximum of $30, and title and registration fees will go up. The state would also increase the vehicle excise sales tax to 6.8 percent, instead of eliminating the trade-in allowance, and create a 3.5 percent excise tax on short-term vehicle rentals.
Lawmakers will not take up Moore's proposed increase to the tax on table gaming, his 75-cent delivery fee or his corporate tax cut. Lawmakers will also keep the state's inheritance and estate tax as is, ending debate over Moore's idea to eliminate the inheritance tax and make more Marylanders eligible for the estate tax. A tax on sugary drinks and snacks, which Moore opposed, was also ruled out.
One revenue-raising option that wasn't fully resolved by lawmakers in their plan is the pitch to implement combined reporting in Maryland. Moore backed passing combined reporting, which has been passed out of the House of Delegates before. The Senate, however, has not embraced the policy and it would face tough odds in that chamber this year.
Even if the policy passed this year, the state wouldn't see new revenue for at least two years, so it does not affect the fiscal 2026 budget.
After the House Appropriations and Ways and Means committees vote on the amendments to the Budget Reconciliation and Financing Act, the budget will go to the House floor. The Senate will consider the bill after the House has passed it. Once the bill passes both chambers, it will go to Moore's desk for his signature.
Dana Munro contributed to this report.