ANNAPOLIS – Gov. Wes Moore plans to change how Marylanders take deductions on their state income taxes, but officials in some of the state’s poorest counties say that plan could force them to cut services.
“You mentioned that the federal government is creating chaos for our state government in an effort to balance their budget,” Del. Jefferson Ghrist, a Republican representing Caroline, Cecil, Kent and Queen Anne’s Counties, told Gov. Moore in a recent budget hearing. “It appears that your budget does sort of the same thing to our county governments.”
Moore’s administration, however, contends that the reforms will provide tax relief to a majority of Marylanders – including residents of lower-income counties – even if those county governments face a revenue loss.
“This proposal leaves more cash in the pockets of the majority of Maryland’s households,” said Budget and Management Secretary Helene Grady.
Lawmakers in Annapolis are weighing a two-pronged approach to tax reform intended to shift the scales in favor of low- and middle-income households.
Moore’s proposal to double the state’s standard deduction would provide a tax break to Marylanders who opt not to itemize their income tax deductions – many of them low- and middle-income. To account for the resulting revenue loss, the governor’s office proposes ending the practice of itemized deductions, which would mean a larger income tax bill for many high-income Marylanders.
But county governments also collect income taxes, and a tax break for lower-income Marylanders would deal a blow to some counties’ budgets.
Representatives from Allegany County appeared in Annapolis last week to ask lawmakers to soften that blow.
“Governor Moore discussed the idea that no Marylanders should be left behind,” Allegany County Attorney T. Lee Beeman told lawmakers on Friday. “Ultimately, his proposal this year will do exactly that in Allegany County. It will leave Allegany County behind.”
If the General Assembly moves forward with doubling the standard deduction, Allegany County would stand to lose $3.2 million in revenue next year, according to Maryland’s Board of Revenue Estimates.
While the vast majority of county residents would receive a tax cut, “we’ll be looking at probably cutting potentially each and every service we have,” said Allegany County Administrator Jason Bennett. “We’re pretty slim as it is.”
Last year, the county laid off emergency services staff and scaled back employee health insurance in response to a $13 million deficit. Additional cuts could mean scaling back snow clearance operations in the winter, public transit service and support for the county’s library service, he told Capital News Service.
If Allegany County raised local income taxes to the maximum rate allowed under Maryland law, he added, the county could only make up for half of the projected losses created by doubling the standard deduction.
Allegany County is not alone. Del. Malcolm Ruff, a Democrat representing Baltimore City, noted that doubling the standard deduction could undercut services in his district.
“Baltimore City would lose approximately $40 million over the next five years based on those changes,” Ruff said.
The Board of Revenue Estimates projects that half of Maryland’s counties and county equivalents would lose income tax revenue if the state moves forward with the proposed changes to deductions. Those include all but one of the 10 poorest Maryland counties as of the Census Bureau’s 2023 American Community Survey.
“Contrast that with our friends in the beltway corridor,” said Beeman. “Montgomery County stands to gain $300 million in income tax revenue over the next five years. It’s a shocking contrast.”
Meanwhile, some members of the Legislative Black Caucus of Maryland have expressed concerns that eliminating itemized deductions would have a disproportionate impact on majority-Black districts in the Washington suburbs.
Residents of Charles and Prince George’s Counties itemize their deductions at higher rates than residents of any other Maryland counties. That presents a political challenge for someone like Sen. Michael Jackson, a Democrat representing parts of Calvert, Charles and Prince George’s Counties. Residents in those districts are more likely than other Marylanders to see their tax bills increase under Moore’s plan.
Jackson told CNS that he and other caucus members representing those counties are in talks with the governor to address their concerns.
But Moore’s current proposals drew praise from some outside observers.
“Itemized deductions are regressive,” said Miles Trinidad, a state policy analyst with the Institute on Taxation and Economic Policy, a nonpartisan think tank. “These policies offer the largest benefits to higher income taxpayers and little if any benefits to low- and middle-income families.”
Grady, meanwhile, notes that the governor’s tax reforms would offer a tax cut to a majority of Marylanders, and that aid to local governments accounts for a third of general fund expenses in the proposed 2026 budget – aid that would support both public school systems and county governments.
The governor’s office also underscores that Maryland’s standard deduction is only a third of Virginia’s, meaning that some poor and working-class residents who would pay no income tax in Virginia make enough to pay income tax in Maryland.
While Moore’s proposal would still leave Maryland’s standard deduction lower than those in Virginia and Washington, his office argues the change is in the interest of fairness.
However, given the dire state of Maryland’s budget and the prospect of dwindling federal support, Grady also noted that the state may not be in a position to simultaneously offer tax cuts to most Marylanders and shield counties from the statewide budget crunch.
“Given the general fund challenge, it would be very difficult to insulate counties entirely from impacts,” she said.
Senate President Bill Ferguson, a Democrat representing Baltimore City, echoed Grady’s sentiment.
“I appreciate [the governor’s] approach of bringing forth a proposal that attempted to balance state needs, local needs and our business climate,” he said. “But we’re dealing with an unprecedented situation, and so just as the state is having to tighten the belt. I think local jurisdictions are going to be in a similar place this upcoming year.”