One year after it sparked little debate in the Maryland State House, a progressive plan to increase taxes on wealthy individuals and corporations while giving a tax cut to lower- and moderate-income families appears on track to pass in some form in the annual legislative session that ends in April.

How far that plan will go is still up for debate.

State lawmakers on Thursday held their first hearing of the session on the Fair Share for Maryland Act, a tax reform proposal that has a similar framework but goes further than Gov. Wes Moore’s own $1 billion tax package.

Both aim to limit dramatic budget cuts and keep investing in areas like education reform as lawmakers face an immediate $3 billion deficit. But for the lawmakers and coalition of advocacy groups behind the Fair Share bill, more is needed — and it’s needed now.

“Maryland’s tax code is in urgent need of an overhaul,” said Christopher Meyer, a research analyst at the Maryland Center on Economic Policy. “We need significantly more revenue to protect investments like education, childcare and disability services.”

Del. Julie Palakovich Carr, a Montgomery County Democrat who sponsored the legislation, said she believes it can raise $1.6 billion annually while also giving a tax cut to 1.3 million lower-income families. The alternative, she said, is scaling back government services even beyond the $2 billion already planned under Moore’s budget.

“We could make billions upon billions of dollars of cuts but they would be deep cuts that would have real impacts on essential services for our residents … A majority of residents support us finding alternatives,” said Carr.

Moore and Senate Democratic leaders declined to consider the ideas in the Fair Share legislation when they were first introduced last year, and Republicans and business groups continued their opposition to them Thursday.

The opponents said the tax changes risk discouraging businesses from coming to or staying in Maryland and maintaining the state’s already stagnant population growth.

“When you increase the tax brackets on these small business owners, they’re the ones who are discouraged from taking that money, reinvesting it in their business, expanding it, hiring more workers,” said Mike O’Halloran, a lobbyist for the National Federation of Independent Business.

Targeting corporations and wealthy earners

The Fair Share for Maryland Act would go beyond Moore’s proposal in a few key ways.

While Moore seeks to capture additional corporate taxes through a method known as “water’s edge combined reporting” — which requires companies that operate in multiple states to report all their revenue across those states, not just in Maryland — Fair Share would implement “worldwide” version of the same idea, factoring in companies’ work overseas.

Other changes to businesses would include a 2.5% “business transportation fee” on corporations’ taxable income above $10 million. The idea was borrowed from New Jersey, which passed a similar fee last year, and aimed at supporting the state’s depleted transportation fund.

It would also increase personal income taxes for the wealthiest Marylanders at a higher rate than what Moore proposed.

Under the governor’s plan, the current maximum 5.75% rate would increase to 6.25% for anyone making at least $500,000 and 6.5% for anyone making more than $1 million. Under Fair Share, the personal income tax rate would be 6% for individuals making more than $250,000; 6.5% for individuals making more than $500,000; and 7% for individuals making more than $1 million.

At the same time, the reform bill would expand both the Earned Income Tax Credit and the Child Tax Credit, which are aimed at supporting low-income families. It would expand the EITC — which, in 2025, is a maximum of $649 for individuals without children — and increase eligibility and amounts for the CTC, which is currently $500 per child for taxpayers with an adjusted gross income of up to $15,000.

The delayed implementation of the tax hikes, shifts and cuts means the bill would have no effect on the fiscal year beginning July 1 — where lawmakers are now actively trying to fill an expected $3 billion deficit, according to an analysis by the nonpartisan Department of Legislative Services.

When fully implemented in the 2030 fiscal year, it would have a net effect of adding $1 billion to state coffers, according to the analysis.

Lawmakers and advocates supporting the plan disagree with those projections, which they said were incomplete. They reiterated Thursday their belief it would ultimately bring in up to $2 billion.

Republicans and interest groups like the Maryland Chamber of Commerce have said even conservative estimates for new corporate and personal income tax revenues are unreliable.

They have applauded Moore for also proposing lowering the corporate income tax rate in future years. But it’s not enough while simultaneously pursuing combined reporting and other tax areas to solve the state’s budget woes, they’ve said.

“What I want to do is have a rational tax policy that encourages economic growth,” said House Minority Leader Jason Buckel, an Allegany County Republican.

Don Griswold, who previously worked as executive tax counsel at Berkshire Hathaway and led a 600-person tax team at one of the world’s largest accounting firms, pushed back against Republicans’ concerns that corporate tax changes like combined reporting would force businesses out of the state.

“It’s really costly and disruptive to move out of a state and the tiny apportioned sliver of your statutory rate that they’re going to have to pay is enough to pay their lobbyists, it’s enough to pay their tax avoidance enablers like former me and pay them all very well,” Griswold said. “Because it doesn’t matter. But it’s very small dollars and at the end of the day they’re not going to do this disruption to move.”

Doug Lindholm, the executive director of the Council on State Taxation, said while opposing the bill that part of that argument is right.

“It’s not a question of companies leaving. It’s a question of companies growing or relocating here. That’s what Maryland needs to focus on,” Lindholm said. “They certainly won’t expand here, and they certainly won’t relocate here.”

It was unclear Thursday if legislative leaders will include some of the additional proposals in the Fair Share legislation in the budget or other legislation as they continue vetting and amending Moore’s plan for the fiscal year beginning July 1. But the $3 billion hole for that year could also grow in the next month, and leaders like Senate President Bill Ferguson have said they anticipate focusing more on cuts rather than revenue to fill the remaining gaps.

Have a news tip? Contact Sam Janesch at sjanesch@baltsun.com.