Testimony: ITEP’s Miles Trinidad on Maryland’s Budget Reconciliation Act of 2025
ITEP Work in ActionThis testimony was delivered to a joint session of Maryland’s House Appropriations and Ways and Means Committees on February 27, 2025.
Thank you for the opportunity to provide testimony on the Budget Reconciliation Act of 2025. My name is Miles Trinidad, and I’m a state analyst with the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan research organization that specializes in state, local, and federal tax policy issues.
Today, I am testifying on behalf of ITEP on Maryland Gov. Wes Moore’s tax reform plan, which would make the state’s tax system fairer, simpler, and better able to meet the state’s needs.
When people are asked to think of a fair tax code, most people wouldn’t point to a tax code where the wealthiest are asked to pay a lower share of their income than low- and middle-income households. Yet, this is currently the case in Maryland. According to our current Who Pays? report, the top 1 percent of Maryland taxpayers pay 9 percent of their income in total state and local taxes, the lowest of any income group in the state. So those with an average annual income of $1.2 million are paying less taxes as a share of income than the state’s teachers, firefighters, or factory workers.
Our analysis of the proposed changes to the income tax, which make up the bulk of Gov. Moore’s proposal, finds that it asks more of those at the top and provides an average tax cut for those earning less. More than three-fourths of the new revenue would come from the wealthiest 20 percent of households while nearly 65 percent of households would see a tax cut – and those cuts would primarily go to middle and low-income households.
The proposal contains several provisions that improve tax equity in the state: higher tax rates for high-income households; a surcharge on capital gains income; and narrowing a corporate tax loophole. Another key feature of the proposal that improves tax equity is the elimination of itemized deductions. Itemized deductions are regressive. These policies offer the largest benefits to higher-income taxpayers and little if any benefit to low- and middle-income families. While itemized deductions are often touted as tools for incentivizing behaviors, such as charity or purchasing a home, design flaws, combined with the inherent limits of using state tax policy to shape behavior, make these deductions ineffective in achieving these goals.
In contrast to itemized deductions, improvements to the standard deduction would provide a boost to a vast majority of Marylanders, since that’s what most already use. The current deduction is small and contains a gradual phase-in that reduces the deduction for low-income households. The plan’s doubling of the standard deduction and elimination of the phase-in would be a boon for low- and middle-income households.
According to our analysis of the changes to the standard and itemized deductions, 65 percent of households would see a tax cut, and about 78 percent of the decrease will go to the bottom 80 percent of households earning under $169,700. On the other hand, about 20 percent of households would see an increase, with 71 percent of the increase paid by the top 20 percent of households, who have average incomes of roughly $400,000 a year.
While there are opportunities to make it even more progressive and capable of raising more revenue, this proposal is well designed and would do a lot to improve the progressivity of the state’s tax system, ensuring that the richest in the state are paying their fair share, while allowing the state to make smaller budget cuts that otherwise would be needed.
Wealth and income inequality in this country are at historic highs, and tax policy can be a critical tool to make our economy work better for all of us, not just the wealthy and well-connected.
Thank you for your time and consideration on this important issue, and I look forward to answering your questions.