Republican Gov. Larry Hogan and the top Democrats in the Maryland General Assembly agreed on a package of tax cuts that will slash state income taxes for most Marylanders age 65 or older, exempt many child care and medical products from state sales tax, and create a new tax credit for businesses that hire Marylanders from groups who often struggle to find jobs.
The deal, projected to cost the state $1.86 billion over the next five years, combines a tax break for retirees and other seniors — the outgoing governor has pitched a retiree tax cut for years — with smaller tax cuts that Democratic lawmakers have advanced this spring as a way to help working families. The bipartisan deal also includes agreements on additional education funding, adding dental care to Medicaid coverage, investments in health care systems, additional state dollars for child care providers and some infrastructure and school construction, among other items.
The tax cuts and spending agreement comes amid a multibillion-dollar budget surplus for Maryland, spurred by a quicker-than-expected rebound from the pandemic and a major influx of federal funding.
Maryland residents age 65 or older who bring in less than $100,000 in taxable income, whether retired or not, would get a $1,000 tax credit while couples earning less than $150,000 would get $1,750. The tax credits aren’t refundable and anyone earning more than the thresholds would not get a credit at all.
Hogan originally pitched getting rid of state income taxes for retirees altogether, claiming some have fled the state in recent years in search of lower taxes elsewhere.
The governor billed Monday’s election year agreement as a bipartisan deal to deliver “the largest tax cut package in state history” and the fulfillment of a seven-year effort to score “long-overdue relief for Maryland retirees.”
About “80% of Maryland’s retirees will receive substantial relief or pay no state income taxes at all,” according to the governor’s office. Those who continue working full-time past 65 could also claim the new credit. A legislative estimate projected that about 57% of taxpayers over 65 would benefit from the new credit.
House Speaker Adrienne A. Jones and Senate President Bill Ferguson, both Democrats, said in a joint news release with Hogan that the bipartisan agreement addressed economic issues highlighted by the pandemic.
“The last two years of the pandemic have shown the cracks in our state’s civic infrastructure,” said Ferguson, a Baltimore Democrat. “This historic agreement demonstrates that regardless of political party, leaders come together to deliver vital services and economic relief for families, seniors and small businesses.”
“The House started this session with a clear goal of helping Marylanders left behind in the post-pandemic recovery,” said Jones, who represents a portion of Baltimore County. “This bipartisan agreement helps hundreds of thousands of seniors on fixed incomes who are struggling with inflation and puts families on a stronger footing as they buy necessities and pay for child care or college.”
The sales tax breaks would eliminate the 6% state sales and use tax on items like diapers, baby bottles, infant car seats, certain thermometers and blood pressure monitors. That’s expected to cost the state $115.6 million in lost revenue over the next five years.
Many other similar products, such as baby oil, baby powder and disposable medical supplies, are already exempt from the tax.
The Work Opportunity Tax Credit proposal would mirror an existing federal program of the same name. The credits, projected to cost Maryland $195 million over the next five years, will give a state tax break to companies that hire people who might otherwise face challenges finding work, including the disabled, military veterans, the long-term unemployed, those with criminal records or residents of low-income neighborhoods.
The tax credits and sales tax cuts, endorsed by leading House Democrats in February, are working their way through the General Assembly already and appeared set to pass during the ongoing 90-day legislative session, which ends on April 11. But a Republican-backed bill to get rid of income taxes for retirees appeared stalled before Jones and Ferguson gave the retooled tax credits for Maryland seniors their endorsement as part of Monday’s announcement.
