With Maryland expecting a surplus and growing revenues, Gov. Hogan pushes tax cuts in final budget

Maryland Gov. Larry Hogan laid out details of his final budget on Wednesday as he finishes his second term in office, a plan that proposes generous tax breaks for retirees and some low-income workers.

The $58.2 billion proposal is a first step in budget negotiations in a year in which the state is flush with cash from a combination of federal aid, a resurgent economy and rebounding tax revenues. The Republican governor also attributed the state’s solid financial footing to “hard work” and “a lot of tightening the belt” over the last seven years.

With no need to pinch pennies, Hogan is proposing to gradually eliminate taxes on retirement income such as pensions and retirement savings accounts. The tax cut would apply to people older than 65 who receive Social Security payments and would phase in over six years, starting with lower-income retirees.

In the first year, the tax cut proposal would eliminate income taxes on 70,000 low-income seniors at a cost of $188 million to the state. But as it expands to more retirees, the price tag is expected to rise, setting the state up to lose significant dollars that it otherwise would collect in income taxes from retirees.

Hogan also is proposing to extend a tax credit that helps low-income workers called the Earned Income Tax Credit. The tax credit, popular among Democrats and Republicans alike, allows low-income workers to keep more of their pay, and the governor and the General Assembly agreed last year to make the tax credit temporarily more generous.

Hogan would make that expansion of the Earned Income Tax Credit permanent. However, his proposal doesn’t extend the more generous credit to people who don’t have a Social Security number, often because they lack legal documentation for residency. Leaving out those workers could be a point of disagreement with the Democratic-led legislature.

Hogan said now is the time for additional tax relief.

“For far too long, politicians in Annapolis have resorted to the same failed overreach, overspend and overtax policies of the past … We have worked hard over the last seven years to change that mentality,” Hogan said.

Hogan also touted the plans in his budget for funding public education, state parks, addiction treatment services and giving raises to state government workers.

He made a pitch again for his “Re-Fund the Police” proposal, a combination of higher pay for state law enforcement officers, financial support for local departments and grants for community safety programs.

The budget requires approval of the state Senate and House of Delegates and will govern state government spending from July of this year through next June.

The Maryland Constitution requires the budget to be balanced, and in past years that required significant maneuvering. This proposed budget is projected to have a $583 million surplus and leaves nearly $3.6 billion in the state’s “rainy day fund,” according to the governor’s office.

“This, of course, is just the first step in the budget process,” said Hogan, adding that he hopes to work with Democrats in the General Assembly “to enact a final budget which seizes the historic opportunity we now have.”

Democratic leaders have expressed a reluctance to enact long-term tax cuts that would consign the state to permanently lower tax revenues. But they have not dismissed all of Hogan’s proposals entirely, saying they wanted to see more details.

House of Delegates Speaker Adrienne A. Jones, a Baltimore County Democrat, quickly found fault with the governor’s proposal after his announcement.

In a statement, Jones said that Hogan’s budget “continues to undermine” a long-term effort to improve public schools known as the Blueprint for Maryland’s Future. And she said she’s “skeptical” that the budget sufficiently addresses an issue of understaffing at state agencies.

Still, she said there’s room for compromise.

“We look forward to working with the Governor and the Senate and will continue to ask, ‘Is this helping the families who’ve been left behind in post-pandemic recovery?’” Jones said in her statement.

The governor’s budget doesn’t fund a part of the Blueprint for Maryland’s Future formula that would send millions in extra money to school districts that have high concentrations of poor students, said Del. Maggie McIntosh, who chairs the House Appropriations Committee. Baltimore City is missing out on $99 million in Hogan’s proposal, and Prince George’s County is missing $26 million, said McIntosh, a Baltimore Democrat.

“This is something we’re going to have to get into a discussion with the governor about,” she said. “It’s important for the poorest children in our school systems.”

Sen. Guy Guzzone, who chairs the Senate’s Budget and Taxation Committee, said there’s “a lot of good” in Hogan’s proposal. But he said lawmakers will consider whether to build on the governor’s plan in key areas such as education, cybersecurity and local health departments.

“When you have additional resources — which we are fortunate to be in this position — are we looking at this opportunity to be able to handle long-term problems that may not have been handled in the past?” said Guzzone, a Howard County Democrat.

That will require some give-and-take, and one area of consideration will be giving a close look at the governor’s tax-cut proposals, Guzzone said.

McIntosh said the governor’s proposal to expand tax breaks for low-income workers is “admirable.” But all tax cuts need to be viewed as part of a bigger picture along with other spending, she said.

“Tax cuts are an expenditure. It’s money that you never get back,” she said. “So that’s going to be a balance.”

Guzzone noted that Democratic leaders worked closely with Hogan last year to pass a pandemic financial aid bill called the RELIEF Act. And they cooperated to assign how to spend an influx of federal pandemic aid that was passed in the midst of the budget process. He hopes the cooperation will continue.

“It’s all about a discussion and a negotiation,” he said.

Hogan, for his part, signaled his hope for fruitful negotiations with Democratic leaders in the color that he chose for the thick budget books: Purple.

For his past seven budget proposals, Hogan’s budget books were printed with somber black covers.

“We wanted to symbolically show it’s different,” Hogan said. “It really is a bipartisan effort, and purple is red and blue coming together.”