By Adam Pagnucco.
Maryland is one of the wealthiest states in the nation, regularly finishing near the top in average income statistics. It also has a gigantic structural deficit reaching billions of dollars in just a few years. The day of reckoning has come as Governor Wes Moore has proposed a package of cuts and tax increases and the General Assembly is consumed with deliberations about its course of action.
A November spending affordability briefing laid out the scope of the state’s problems. They are rooted in three converging factors: a weak economy, surging entitlement spending (primarily on Medicaid) and soaring public education spending (owing to the state’s Blueprint program). As shown in the chart below, entitlements (mostly Medicaid) are the largest driver of spending in FY25-27, whereas education aid (primarily the Blueprint) is the driver of spending in FY27-30. As Carl Sagan would say, the combined cost is billions and billions.
Adding together all of the state’s funds (general, special, federal and nonbudgeted), Moore’s proposed Budget Reconciliation and Financing Act, which adjusts state law to facilitate his budget plan, would add $6.4 billion in state revenues and cut $2.7 billion in state spending over the five-year FY25-29 period. Both the revenue increases and spending cuts have been greeted with fierce loathing by politicians and interest groups in Annapolis.
Nearly half of Moore’s additional revenues (totaling $3 billion over FY26-30) would come from changes to the state’s income tax. A majority ($1.6 billion) would come from eliminating itemized deductions and replacing them with a doubled standard deduction. This would impact a substantial number of middle class people. The rest would come from his addition of two higher rate tax brackets applying to returns exceeding $500,000 ($600,000 for joint returns) and returns exceeding $1 million ($1.2 million for joint returns). Montgomery County would pay nearly half of the cost of this tax package despite the fact that it has one-sixth of the state’s population.
Republicans blame Democrats for overspending, especially with regards to the Blueprint (which former GOP Governor Larry Hogan vetoed). Democrats point the finger at President Donald Trump, who is busily wrecking the federal government, and worry that Congressional Republicans will shift Medicaid costs to the states. Meanwhile, Virginia is running a huge state budget surplus and their leaders are discussing tax cuts. Rarely have the two shores of the Potomac River looked so different.
Whatever elements of truth may lie in the dueling pointed fingers, Maryland’s economic problems have a far more ancient origin: the state has been losing billions of dollars due to taxpayer flight for decades. While once these outflows were more modest (and occasionally negligible), they have ballooned in recent years even before the onset of the Blueprint and Trump. This steady and growing bleed is a major, although little discussed, component of today’s epic problems.
This series will quantify Maryland’s wealth drain.
In 2018 and 2023, I used taxpayer migration data from the U.S. Internal Revenue Service to chart the net departure of adjusted gross income (AGI) from Montgomery County. That same data is available for U.S. states and it contains an interesting additional detail: migration for states is broken out by AGI levels. Those levels are:
$1 under $10,000
$10,000 under $25,000
$25,000 under $50,000
$50,000 under $75,000
$75,000 under $100,000
$100,000 under $200,000
$200,000 or more
This helps us learn more about which taxpayers are coming into Maryland and which ones are leaving. We can also find out where they are going and explore why that might be.
We will get started in Part Two.