Maryland Has a Long Way to Go on Taxes

With Maryland's new budget going into effect in July for FY 2027, Governor Wes Moore has touted the plan as fiscally disciplined, citing no new taxes or fees. But one year without new increases doesn't reverse Maryland's problematic budgetary trajectory.

Maryland residents and businesses are still living with the tax increases enacted in the current FY 2026 budget, which included a 3% sales tax on IT services; an increase in the vehicle excise tax rate from 6% to 6.5%; an increase in the vehicle emissions inspection fee from $14 to $30; a 3.5% rental vehicle tax; and a new $5-per-tire fee, among others.

Maryland has traditionally been among the least tax-competitive states in the country, and it’s only gotten worse under the Moore administration. According to a Tax Foundation analysis of its State Tax Competitiveness Index, Maryland ranked 42nd on the index in FY 2020 and has since fallen to 46th in FY 2026, where 1st is most competitive and 50th is least.

Neighboring states have also seen their tax-competitiveness rankings slip over that period, but they all remain substantially more competitive than Maryland, according to the Tax Foundation report. In FY 2026, Delaware ranks 24th, Pennsylvania 36th, and Virginia 30th.

The income tax is a big part of why. Maryland’s low tax competitiveness is driven in large part by high income taxes, as the Tax Foundation's full report details, a topic I covered last month. As part of the FY 2026 budget, Maryland created a new top marginal rate for personal income tax at 6.5%, compared to 3.07% in Pennsylvania, 5.75% in Virginia, and 4.82% in West Virginia. Maryland’s corporate income tax rate is also high at 8.25%, compared to 7.99% in Pennsylvania, 6% in Virginia, and 6.5% in West Virginia.

This matters especially because Maryland is an expensive, high-cost-of-living state competing for businesses and workers who have options regarding where they choose to live. Maryland is making itself a harder and harder sell.

Governor Wes Moore needs to get serious about improving Maryland's budgetary situation. As part of that effort, the "Free State" definitely needs to treat improving its tax competitiveness ranking as an economic priority.