Gov. Wes Moore and leaders in the Maryland General Assembly said Thursday that they have settled on a final framework for closing a roughly $3.3 billion budget deficit that, compared with their original proposals, leans less heavily on personal income tax increases and more on spending cuts and a tax increase that primarily hits technology companies.

“This framework will inform the final budget and the final bill that goes from the House to the Senate, and I look forward to signing it when it makes it to my desk,” Moore, a Democrat, said at an Annapolis press conference on Thursday. “We know we have more work to do before signing it, but together, today, we celebrate a very important step forward in securing Maryland’s long-term fiscal accountability.”

The budget includes at least $2.3 billion in cuts, which Moore described as $500 million more than his original proposal and the most significant cuts to state government in 16 years.

While it will raise income taxes on the highest earners, it will either lower or not impact taxes for 94% of Marylanders, Moore said. That’s also more than the two-thirds of Marylanders he originally targeted for a modest $173 tax cut, though the governor did not specify how much the cut would be under the latest plan.

Other taxes proposed by the governor or Democratic lawmakers this year — like a new 75-cent fee on retail deliveries purchased online a new 2.5% tax on a larger area of business-to-business services — are not in the final plan.

The replacement for those previous revenue options will be a 3% tax on data and information technology services. Moore said that would include large website and cloud computing providers like Wix and Amazon Web Services. This tax will not include accounting, payroll, staffing, office support, employment services, consulting, design and printing, public relations, marketing or financial services.

Both Moore and Senate President Bill Ferguson pitched it as a modernization of Maryland’s tax code.

According to Ferguson, 45 states across the U.S. currently tax services.

“This reform package will help us to bring our tax code into the 21st century,” Moore said. “It means the majority of Marylanders can keep a little more in their pocket even as we here in Annapolis tighten our belts.”

Leaders in the small business community recoiled at the tech services tax proposal. The Maryland Chamber of Commerce said that it will increase costs for both businesses and consumers.

“It seems the governor and legislative leaders may still be moving forward with plans to increase taxes on small business owners that file their tax returns as pass-through entities. They’re also going to tax their IT services, which are critical in today’s economy,” National Federation of Independent Business Maryland Director Mike O’Halloran said in a statement. “Small businesses are being asked again to do more with less as the state continues to struggle with its structural deficit.”

Officials did not immediately identify the $2.3 billion in cuts, though House Appropriations Chairman Ben Barnes said they did not include at least one controversial proposed cut impacting the Developmental Disabilities Administration.

“As Donald Trump continues his assault on workers, health care and our most vulnerable, we are preserving funding for state employee salaries, cancer research, victim fraud and [the Developmental Disabilities Administration],” House Speaker Adrienne A. Jones said.

With funding restored to the Developmental Disabilities Administration, cuts to the budget are smaller but more widespread, running the gamut across state government.

The House Appropriations Committee voted to approve the budget and the Budget Reconciliation and Financing Act of 2025, greenlighting cuts to vacant and newly proposed government employee positions across state agencies, reducing funds for certain personnel expenses and restricting funding across the executive branch pending the completion of certain reports.

Both bills are likely to hit the House floor for debate next week. It is anticipated that the bills will receive some amendments once they reach the Senate.

How we got here

At the session’s start, Moore, introduced a budget with a proposed $2 billion in cuts and $1 billion in tax increases and shifts.

Lawmakers had warned about the likelihood of more cuts, and some top Democratic lawmakers had floated the idea of creating a new tax on business-to-business services and sugary beverages.

Addressing the press on Monday, Moore said he would not approve a “broad” tax on business to business services, and that a tax on sugary drinks would not end up in the final budget proposal.

Members of the Moore administration provided vague details of what the governor meant by “broad” Monday, saying that it could apply to services that independent consumers pay for, as well, and that conversations about the final policy, including the percentage point of the tax, were ongoing with House and Senate leadership.

In a statement released Wednesday, Senate Minority Leader Steve Hershey, an Eastern Shore Republican, said Moore is “trying to spin this as a win.”

“This move directly targets the very industries such as Technology, Cybersecurity, AI and Quantum, he claims to be prioritizing for Maryland’s economic growth,” Hershey said. “What’s more concerning is that this change will have a catastrophic effect on the small, minority, women and veteran-owned businesses that are predominantly subcontracting programs and operate on slim margins to begin with

“How do we grow our economy if we stifle innovation instead of driving efficiencies in government by relying on these industries?”

Moore, Jones and Ferguson also turned their eyes toward President Trump’s administration as a factor that could worsen the state’s already-precarious financial situation.

Moore said the tariffs the president has threatened to impose against the country’s biggest trade partners could result in more than $2 billion in direct impacts to Maryland’s economy, touching industries from dining to farming to the port of Baltimore.

Ferguson said that the “slash and burn” approach Trump has taken in his first 50 days in office has given lawmakers a “good idea” of further hits the state may bear as his term continues to develop.

Ferguson said that the proposed budget also includes federal government spending triggers, which he said are “designed to protect Maryland residents” from disenrollment in federal programming should they be disrupted by the Trump administration.

“Let’s be clear: Donald Trump doesn’t care about us. He doesn’t care about Maryland. He doesn’t care about federal workers in Woodlawn, or the teachers in Howard County, or the farmers on the Eastern Shore or the medical researchers in Montgomery County,” Jones said.

“He’s out there every day, disseminating our workforce and wrecking our economy.”’

Republicans have criticized the budget proposal and Democratic finger pointing at Trump.

“We have had weeks of rhetoric from the Governor and Democratic leadership about the existential threat Washington D.C. poses to Maryland’s economy,” House Minority Whip Jesse Pippy said in a statement. “Now they turn around and deal what will be a horrendous blow to our economy with more than a billion in new taxes including a significant tax on the technology sector we are trying to grow.”

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