With the 447th legislative session in Maryland underway, the state’s budget has taken center stage as a key concern for both lawmakers and constituents. After years of a financial surplus, Maryland now faces an unprecedented fiscal challenge, one that will have far-reaching consequences for state programs, essential services and taxpayers.

On Jan. 15, 2025, as required by the Maryland Constitution, Gov. Wes Moore unveiled his proposed Fiscal Year 2026 budget. Each year, the Senate Budget and Taxation Committee and the House Appropriations Committee oversee the budget process. After the briefing, both committees will hold public hearings over several weeks, allowing state agencies and stakeholders to present testimony and evaluate potential changes to the Governor’s proposed budget.

This year, Maryland lawmakers face a record-breaking $2.7 billion budget deficit, the largest ever presented to the General Assembly. For context, the state had a $479 million surplus last year and a $555 million surplus in 2023.

It’s essential to emphasize that while adjustments can be made to the proposed budget, the state must maintain a balanced budget and ensure the total amount does not exceed the governor’s initial budget proposal. The budget must be passed by both chambers by March 31, the 83rd day of session.

Maryland’s financial landscape has changed drastically. The state last faced a budget deficit in 2019, with a relatively small shortfall of $62 million. Now, many are questioning how Maryland went from a $5.5 billion surplus at the end of the previous administration, comprising $3 billion in rainy day funds and a $2.5 billion budget surplus, to a multibillion-dollar deficit in just a few years.

Gov. Moore’s proposed $67.3 billion budget reflects a 1% spending increase from the previous fiscal year and includes $987 million in new taxes, fees and assessments, adding yet another financial burden on taxpayers. Despite imposing new taxes and fees, the budget still faces a nearly $3 billion deficit, emphasizing the failure of these revenue-raising measures to address the financial crisis

Key factors contributing to the deficit include: rising entitlement costs, declining federal aid, new spending commitments and economic shifts such as slowed growth and inflation.

Moore’s proposed budget includes several key spending increases, such as $139 million for Medicaid hospital assessments; an increase in climate reduction funding, rising from $90 million to $180 million; and $128 million allocated to advancing Maryland’s competitiveness in quantum computing, cybersecurity and life sciences.

The most alarming budget cut is the $200 million reduction in funding for the Developmental Disabilities Administration, which provides vital services to Maryland’s most vulnerable residents, many of whom are unable to advocate for themselves.

The proposed budget also introduces significant tax and fee changes. The addition of two new tax brackets, for instance, will raise rates to 6.25% for Marylanders earning $500,000 and 6.5% for those earning $1,000,000. In the past, similar changes have resulted in $1 billion leaving the state.

While the inheritance tax will be eliminated, the budget lowers the estate tax exemption threshold from $5 million to $2 million. This change is expected to place a heavy tax burden on the next generation, penalizing Marylanders who have worked hard to build financial security for their families.

The introduction of combined reporting for corporate taxes will require businesses to account for profits across all affiliated entities, potentially harming companies operating in Maryland.

Other new taxes include an increase in luxury taxes on casino and sports gambling and cannabis. There is also a host of new fees, including on online deliveries, a cost that will be passed on to consumers, as well as fee increases on vehicle emissions testing and late vehicle registration.

These proposed tax and fee changes will have far-reaching effects on individuals, businesses and essential services. As lawmakers work through this budget crisis, the key question is whether Maryland is achieving the right balance between fiscal responsibility and economic growth or if these changes are unfairly burdening taxpayers and businesses, both already struggling with rising energy costs and inflation on essential goods.

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J.B. Jennings is a Republican state senator representing District 7, serving Baltimore and Harford counties.