Proposed Budget Highlights
The projected budget shortfall, before any budget actions, was $2.95 billion for fiscal 2026. The proposed budget changes result in a positive ending balance of $105.9 million and reduces the structural deficit for fiscal 2026 from a projected $2.5 billion to $247.0 million. The proposed budget is driven by four priorities: growing the economy, strengthening the state’s labor force, modernizing government to produce results, and reforming the tax code to make it fairer and simpler. The general fund tax reform package raises $987 million, with specific provisions outlined below.
Tax Reforms
- Individual Income Tax Changes
- Doubles the standard deduction and eliminate itemized deductions.
- Eliminates the standard deduction penalty for low-income workers.
- Consolidates the bottom four income tax brackets at 4.7 percent.
- Expands the child tax credit by phasing out the credit and avoiding the “cliff”.
- Adds two new tax brackets and rates for high-income households (greater than $500,000 and $1.0 million).
- Adds a 1.0 percent surcharge on capital gain income for high-income households for four years.
- In corporate income taxes, the budget proposes a lower corporate tax rate over two years (from 8.25 to 7.99 percent) and broadens the tax base by instituting “waters edge” combined reporting.
- Eliminates the inheritance tax and offset the revenue loss by lowering the estate tax exemption from $5.0 million to $2.0 million.
- Increases the sports wagering tax rate from 15 percent to 30 percent; increases the table game tax rate from 20 percent to 25 percent; increases the cannabis tax rate from 9 percent to 15 percent; phases out state funding for the Enterprise Zone tax credit; and reduces the student debt relief tax credit by $9.0 million for one year.
Ending Child Poverty
- Provides state funding to leverage private philanthropy for the ENOUGH Act, aimed at ending concentrated child poverty and building thriving communities.
- Adds funds to support the Child Care Scholarship program, which is projected to serve over 40,000 children in fiscal 2026.
- Allocates general funds to leverage federally supported nutrition benefits.
- Sustains funding for food banks and nutrition services.
Education
- Provides record funding for K-12 education, including investments in the fourth year of funding for the Blueprint for Maryland’s Future.
- Increases funding for autism waiver services.
- Provides additional funds to the Cade funding formula for the state’s community colleges.
Stimulating Economic Growth and Connecting Marylanders to Jobs
- Includes targeted investments to stimulate economic growth and bolster economic competitiveness, including a Strategic Infrastructure Revolving Fund, Certified Sites Program, BioHub Maryland, CyberMaryland, and Capital of Quantum Initiative.
- Increases funding for the Employment Advancement Right Now (EARN) program, implementing industry-focused strategies that provide long-term solutions to skill gaps and personnel shortages.
- Funds a new collaboration between the Departments of Transportation and Labor focused on workforce development within the transportation sector.
Creating Safer Communities
- Sustains funding for the State Aid for Police Protection program.
- Increases funding for the Department of Juvenile Services’ Enhanced Services Continuum.
- Adds funds to reopen a juvenile facility to serve as an adolescent drug treatment center.
- Sustains funds for Thrive Academy, a youth gun violence prevention program and level funds the Safer Stronger Together initiative, an evidence-building crime-reduction collaboration.
Managing Costs
- Announces the launch, in 2025, of the Government Modernization initiative to improve the efficiency of core government operations.
- Ensures the effective and sustainable introduction and expansion of new and current programs.
- Continues investment in important programs but at more reasonable growth rates.
- Redirects spending from programs that are underutilized or underperforming to higher priority programs.
- Reinstates previous cost sharing levels.
Other Priorities
- Provides record funding in aid to local libraries.
- Infuses new revenue in the Transportation Trust Fund annually and helps invest in operating budget needs, enhance funding for local jurisdictions, and enable significant investments in the capital program.
- Funds initiatives to support implementation of the State’s Climate Pollution Reduction Plan, including solar and geothermal development.
- Adds funding for the Department of Service and Civic Innovation to support continued development of the Maryland Corps and Service Year Option programs.