Susan Ferrechio | April 18, 2025

(The Washington Times) — Maryland’s steep tax increases follow the lead of other liberal-leaning states that love to spend and are now desperate to raise revenue to dig out of growing deficits and fund new spending.

Under the state’s $67 billion budget that the General Assembly passed this month, Marylanders will pay $1.6 billion for a dizzying array of new taxes and fee increases beginning in July.

“Spending is driving it all,” said Stephen S. Hershey Jr., a Republican and the minority leader of the Maryland Senate.

Gov. Wes Moore, a Democrat, said tax hikes were necessary to close a projected $3.3 billion budget shortfall in 2026 and increase spending by 1%. The fiscal demands stem from spending mandates including the Blueprint for Maryland, a 10-year education funding and reform plan passed by Democrats that requires the state and local governments to spend billions of dollars for teacher raises, special education and more.

To raise revenue for the fiscal 2026 budget, Mr. Moore and the Democratic-led legislature agreed to add two tax brackets for those earning more than $500,000 annually and created a 3% tax that will affect businesses that outsource data and information technology services, such as payroll. Residents earning more than $350,000 annually will have to pay a 2% surcharge on capital gains. Anyone hitting the vending machine for a snack will have to fork over a new 6% tax.

The budget agreement increases the state’s cannabis sales tax from 9% to 12% and the vehicle excise tax from 6% to 6.5%. Vehicle emission inspection fees will more than double to $30, and new tire purchases will be taxed at $5 apiece.

A slew of other taxes and fees also increased.

Other Democratic-led states are considering tax increases to shore up deficit-threatened budgets while boosting spending on liberal priorities.

Many states are at “an inflection point and are facing budget shortfalls they haven’t seen in years,” said Josh Goodman, who leads research on fiscal management and long-term budget sustainability for Pew’s state fiscal health project.

Mr. Goodman said the shortfalls have emerged with the end of federal COVID-19 funding, which provided billions of dollars to states and enabled many legislatures to pay for new spending initiatives and even slash taxes.

“Now, states must figure out how to pay for these commitments with less money coming in and costs mounting,” he said.

State governments are facing the reality of a post-COVID emergency while grappling with possible federal funding cuts as the Trump administration seeks significant savings.

However, fiscal warning signs are not curbing appetites for new spending in many Democratic-led states.

Amid a projected budget shortfall by the end of the decade, New York Gov. Kathy Hochul proposes the largest state spending increase in four decades. She hopes to fund it partly with a five-year extension of a “temporary” personal income tax on high-income earners.

Her proposed budget increase of 8% includes a nearly 5% increase in school spending, to $37.4 billion, more than $2 billion to expand housing and $1 billion for “the clean energy transition,” including thermal energy networks on state college campuses and retrofitting homes and businesses to support “decarbonization.”

The conservative Citizens Budget Commission projected that New York would need to spend far less than Ms. Hochul proposes and cap spending increases at 2.7% every year, beginning in 2025, to avoid an $11 billion budget shortfall in 2029.

Massachusetts Gov. Maura Healey this year proposed a series of tax increases to help fund a 7.4% increase in state spending. The first-term Democrat’s 2026 budget plan calls for taxing prescription drugs, candy and synthetic tobacco products. It also would permit an increase of up to 5% on car excise taxes, local meals and lodging and impose a cap on deductions for charitable donations.

New Jersey, facing a structural budget deficit of $1.2 billion, is weighing a 2.7% increase in spending in 2026. Gov. Phil Murphy, a Democrat, proposed bringing in an additional $1.2 billion in revenue by raising taxes on alcohol sales, gambling and sports betting, tobacco, vaping and real estate sales. His plan to raise money would extend the state’s 6.625% sales tax to vehicle trade-ins, interior design services, horse training and “participatory sports” such as bowling and laser tag.

Mr. Murphy also proposes a $2 per-trip tax on warehouse delivery trucks that would generate $20 million and likely increase consumer prices.

“This new tax will drive up the cost of everyday essentials for families across New Jersey, whether they shop online or in person,” New Jersey Republicans warned in a statement opposing the budget proposal.

In Maryland, the state’s sports betting tax increased from 15% to 20%. If new state taxes weren’t enough, the budget allows local governments to increase their “piggyback” income taxes to 3.3% from 3.2%.

Mr. Moore told Fox 45 in Baltimore that his budget “is giving the middle class a tax cut in this moment” and said the plan amounts to the largest cuts “in literally a generation.”

Under the plan, 94% of Marylanders will receive a tax cut, on average about $50 annually, or pay the same level of income taxes. The budget increases the standard deduction by 20%.

The two new income brackets for higher earners, starting at $500,000, are expected to generate $370 million annually. In comparison, the 2% tax on capital gains for those with incomes greater than $350,000 will bring in $344 million.

“We are asking those of us who have done exceptionally well to pay slightly more, so we can have the best schools in the country, so we can support law enforcement and our firefighters, so we can make sure that we are growing our economy,” Mr. Moore said in March.

The plan cuts more than $2 billion in state spending, but Republicans called the reductions “fiscal maneuvering and not true cuts” because some budgeting simply shifts costs to local governments or leaves vacancies unfilled.

Mr. Hershey and fellow House and Senate Republicans, who make up 28% of the state’s General Assembly, voted against the plan with five Democrats.

He fears the tax increases, particularly on IT services, will drive companies to more business-friendly states such as Pennsylvania, Virginia and North Carolina.

Virginia has avoided new business taxes under Gov. Glenn Youngkin, a Republican. Although the Virginia General Assembly rejected many of his pro-business tax cut proposals, it passed Mr. Youngkin’s provision to extend a law allowing businesses to exceed federal limits on state and local tax deductions.

Virginia’s 6% corporate tax rate hasn’t changed in more than 50 years. This year, CNBC ranked Virginia as the No. 1 state for businesses.

“Here in Virginia, we balance our budget every year,” said Youngkin spokesman Peter A. Finoccio. “And under Gov. Youngkin’s leadership, we’ve raised revenue by growing business investment in the commonwealth, not by raising taxes on fixed-income families.”

Mr. Finoccio said new businesses have invested $100 billion in the state and created 276,000 jobs during Mr. Youngkin’s tenure.

Maryland ranked among the worst states on the 2024 business climate tax index published by the Tax Foundation. In recent years, major businesses, including Amazon, Raytheon, Boeing and several tech companies, have planned new offices or corporate headquarters in Virginia, the Maryland Public Policy Institute reported.

Mr. Moore’s budget proposal called for lowering the state’s 8.25% corporate tax rate, the 10th highest in the nation, to 7.99% over two years beginning in 2028. The Democratic-led General Assembly rejected it, and it remains unchanged.

The General Assembly, Mr. Moore said, “missed an opportunity to make Maryland a more attractive destination for business.”

The budget includes a carve-out that will spare from the 3% tech tax certain technology businesses that are growing in the state, including cybersecurity and some quantum computing companies.

Mr. Hershey said Republicans and a growing number of Democrats worry that the state’s spending and tax policies are driving away businesses, their biggest source of revenue, while setting up an increasingly richer social safety net that has attracted needier residents.

“If you’re bringing in more people that need government services, and the people that provide to the economy are leaving, that’s a death spiral,” Mr. Hershey said. “And you can’t tax your way out of that.”