Envisioning a not-so-distant future when public school budgets are on the chopping block and essential workers like probation officers lack the resources to do their jobs, a handful of state lawmakers and a coalition of advocates on Monday introduced a plan they say would raise $1.6 billion to plug a significant impending state budget hole.
The new revenue — which would come mostly from expanded taxes on households earning more than $250,000 and on corporations — is designed to offset a multi-billion-dollar projected budget deficit that has so far dominated conversations in Annapolis during the annual 90-day legislative session, which began Jan. 10. It’s also aimed at helping lower earners by giving a tax break of up to a few hundred dollars to most Marylanders, reversing what the advocates say have been decades of inequitable tax burdens.
Proponents say the problem is urgent, though their solution as introduced is considered a long shot because of its scope and because key lawmakers say they don’t plan on pursuing any comprehensive revenue plans this year.
“Generating new revenues isn’t like turning on water at your kitchen sink. You don’t just turn on the faucet and more money flows out. Making these changes to our tax system will take one, two, even three years,” said Del. Julie Palakovich Carr, a Montgomery County Democrat who’s sponsoring the plan. “It’s essential that we enact tax reforms this session so that the money will be here when we most need it.”
The $63.1 billion budget that Democratic Gov. Wes Moore introduced last week would, if approved by lawmakers in the coming months, reduce some spending and pull from the state’s rainy day fund to solve an immediate shortfall and spend more on Democrats’ priorities for the fiscal year beginning July 1.
But beyond that, the state is facing a structural deficit that legislative fiscal analysts say would grow to $3 billion in four years. That does not include billions of dollars in additional spending around ambitious education, transportation and climate plans that lawmakers have already approved without ways to pay for them.
“The budget outlook over the next few years is daunting,” said Sen. Shelly Hettleman, a Baltimore County Democrat who’s taking the lead in her chamber to push for what she and others are calling the Fair Share for Maryland Act.
Among the legislation’s most impactful changes would be a shift in Maryland’s personal income tax.
Under current law, individuals earning more than $250,000 and couples earning more than $300,000 pay a maximum rate of 5.75%. The new legislation would add additional tax brackets above those current maximum income levels, up to 7% on those earning $1 million or more annually. The shift would raise an estimated $419 million annually for the state, according to the Maryland Fair Funding Coalition.
The bulk of the money, however, would come from changing the rules around corporate taxes.
About $576 million annually could be raised by implementing what’s known as combined reporting, which prevents companies that operate in multiple states from using shell companies to avoid paying state taxes. Another $745 million annually would come from forcing large companies that are incorporated in certain ways under the IRS and are currently exempt from corporate taxes, including limited liability companies, to begin paying.
Other elements of the plan include implementing a 1% surtax on capital gains and expanding the estate tax to capture more individuals who inherit millions of dollars.
The tax burden on individuals who make less than $340,000 per year would not change, and the 80% of households that make less than $165,000 would actually see an average tax cut of $149, according to the advocates.
All the tax reforms combined would raise close to $2 billion annually while another part of the plan to expand the state’s child tax credit and earned income tax credit would use about $400 million of those initial revenues.
Still, any and all elements of the plan will face significant headwinds in the Maryland General Assembly and potentially with Moore.
The governor said this month his bar for considering new taxes is “very, very high.” Senate President Bill Ferguson, a Baltimore Democrat, has said repeatedly in recent weeks that he does not want to consider large new revenue plans this year, even as some House Democrats have spent the first few weeks of the session talking about the urgent need to look for new revenue. Republicans who make up a minority of both chambers have also pushed back against the idea of any new taxes.
Hettleman, in an interview, said she was “under no illusions” about the difficulty of getting such a comprehensive revenue package passed.
Advocates within the Fair Funding Coalition, who have committed $350,000 to an advertising campaign targeting lawmakers, say the time to have the conversations and pull the trigger is now.
“We are rapidly reaching a breaking point in our state services that are reflected in the dangerously low staffing and workplace injuries at our state hospitals, facilities and worksites,” said Patrick Moran, president of the union that represents roughly 45,000 public employees in Maryland.
The union — Council 3 of the American Federation of State, County, and Municipal Employees (AFSCME) — has worked with Moore to find money in the budget for employees’ wage increases. But they’ve also continued to raise the alarm over thousands of state employee vacancies that Moore has said have been harder to fill than he originally anticipated.
The staffing issues as a result of those vacancies have led to high caseloads for social workers and public defenders and longer wait times in state hospitals, Moran said.
Rayneika Robinson, a parole and probation agent, said there are agents juggling hundreds of cases at the same time because of shortages in the Division of Parole and Probation, whose employees she represents as the head of AFSCME Local 3661.
“At times we are forced to choose between helping someone get connected with mental health resources or finding [them] a job because there’s simply not enough time to do it all,” Robinson said.
Others spoke about the tax burden shift as a way to solve historical inequities. According to the coalition, the bulk of the tax cuts would go to households earning below $64,300, including average cuts of $285 for Black families, $266 for Hispanic families and $163 for white families.
“For so long in the United States, and in this state, we have placed the burden, the brunt, the weight, on the most vulnerable, on those who are experiencing economic insecurity, those who are not able to advocate for themselves while the powerful, the wealthy, the strong, the rich, have a field day,” said the Rev. Kobi Little, president of the NAACP Maryland State Conference. “This legislation shifts the paradigm.”