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Maryland Gov. Wes Moore introduced his $67.3 billion operating budget proposal for 2026 that he said is based on growing the economy to provide a path to work, wages and wealth.

Moore said the state faces a fiscal crisis nearly a decade in the making based on increased spending amid a downturn in the economy and that his budget plan contains spending cuts and a tax code overhaul.

"With this budget, all will get done (to) build an economy that grows the middle-class and gives everyone a pathway to work, wage and wealth," Moore said.

The governor also pointed to what he called a "stark, new policy direction" from the incoming Trump administration that could include cutting federal spending, slashing safety net programs and altering the tax code.

According to the proposal, health ($22.2 million) and education ($12.1 million) comprise the largest portions of the budget, followed by higher education ($9.4 million), transportation ($6.6 million), human services ($4.9 million) and public safety ($3.8 million).

The plan maintains a Rainy Day Fund balance of 8% of general fund revenues in fiscal year 2026 at $2.05 billion.

Governor says he seeks to identify spending cuts

Amid a $2.95 billion budget shortfall , the governor revealed his highly anticipated proposal includes tax changes and spending cuts.

"You've got to make sure that you're curtailing the spending and increasing the income, that's how you address the structural deficit that we inherited," Moore said.

The governor said the plan was created while examining how to make government more efficient and how to make $2 billion in disciplined cuts. Additionally, the governor launched a new government efficiency initiative last week to find $50 million in savings by eliminating waste across state agencies.

The governor said some spending will be redirected for underutilized or underperforming programs.

Governor: Spending increased as Maryland's economy slowed

But he said the state will not be able to cut its way out of the deficit, saying his plan would contribute toward growing the economy by increasing state revenues by $1 billion.

"The reason why we inherited this fiscal crisis is because the economy is not growing," Moore said. "We've got to be an economy that makes investments, because that's the kind of growth mentality that's going to help to solve a lot of these challenges."

The governor said Maryland's economy grew by only 3% between 2017-22 while the national economy grew 11%. Moore said the state has to grow the economy, strengthen the labor force, modernize government and fix what's broken in the state's tax system.

"If our economy had been growing more rapidly, if our (gross domestic product) growth was moving at a higher clip, guess what we would not have inherited? A structural deficit," Moore said. "The problem is when you have spending increasing by 70% and GDP growing by 3%, you have a problem, one that was long predicted, and one that can be only fixed by growth."

Moore refuted claims that his term began with a budget surplus, saying a structural deficit had been brewing over years — not a surplus.

"Emergency COVID money papered over a structural deficit that had been warned by experts since 2017, and now, we face the worst fiscal crisis in at least 20 years, one even worse than the Great Recession," Moore said. "We did not inherit a surplus. We inherited a structural deficit; COVID money is not a structural surplus ... This budget crisis has been projected since 2017, so it's not a new thing."

This report will be updated .

2026 Maryland budget proposal highlights

The governor's proposed tax code overhaul aims to give low- to middle-income wage-earners a break while high-salaried residents would pay more, which could all add up to almost $1 billion in new revenue.

"We put forward a commonsense package for tax reform that will make taxes simpler, fairer and pro-growth," Moore said.

Maryland income taxes

The governor said the budget team learned from other states' best practices when it comes to adjusting taxes in Maryland.

Inheritance taxes would be eliminated and there would be a 1% surcharge on capital gains income for households earning more than $350,000, which would sunset after four years.

"We looked at things like why Maryland is the only state in the country that has both an inheritance tax and an estate tax. It made no sense," Moore said. "By being able to understand what other states are doing, that gave us an understanding of what do we need to adjust in the state of Maryland to make sure that we can have a tax code that is simpler, fairer and pro-growth, and, for the vast majority of Marylanders, lower."

Moore said the tax cuts would result from consolidating lower tax brackets and doubling the standard deduction while also eliminating itemized deductions.

The governor said his budget proposal includes income tax cuts such that 82% of taxpayers could see a tax cut or no change in tax obligations.

Other Maryland taxes

The plan proposes no sales tax increases and no expansion of the sales tax to other goods and services that aren't currently taxed.

The proposal calls for increases in taxes on sports wagering from 15% to 30%, table games from 20% to 25% and cannabis from 9% to 15%.

The plan would cut corporate tax rates by 0.25%, and the governor is also embracing closing a corporate loophole by instituting combined tax reporting.

Maryland transportation revenues

To pay for transportation upgrades over the next five years, the governor's plan would impose a 75-cent fee on food and goods deliveries, lower the vehicle trade-in allowance and increase vehicle inspection fees from $14 to $30 and do so a year earlier than planned.

Also Wednesday, the Maryland Department of Transportation released its $21.2 billion consolidated transportation program for fiscal years 2025-30 that it said includes an additional $420 million in state transportation funding annually beginning in fiscal year 2026.

MDOT said its program reinvests millions of dollars in safety that includes critical bridge repairs, road resurfacing and safety enhancements. It also includes funding to modernize the Light Rail system, enhance the economic competitiveness of the Port of Baltimore, fund the environmental study process for the proposed Southern Maryland Rapid Transit project and address safety needs at Baltimore-Washington International Thurgood Marshall International and Martin State airports.

Legislative leaders: Plan likely to change significantly

This year, the House gets the budget followed by the Senate, and legislative leaders said it's likely to significantly change. State law mandates a balanced budget, and the deadline to finalize it is the last day of the legislative session in April.

"We are going to look at it real hard. We are going to fight about things that we think are important to the state of Maryland and try to get a budget that is reasonable, that's fair, but doesn't create situations where we lose that economic growth that we need so desperately," said House Minority Leader Jason Buckel, R-District 1B.

"They are complicated and problematic, in some incidences, whether or not we can live with some of it. We'll see," Senate Budget and Taxation Committee Chairman Guy Guzzone, D-District 13. "We are going to sample families to figure out the true impact on everything we can possibly come up with."

Maryland Republicans' statement on budget proposal

The General Assembly's Joint Republican Caucus issued statements lauding reductions in spending but also raising concerns about tax increases that they said could hinder economic growth.

Senate Minority Leader Steve Hershey, R-District 36: "While we appreciate the governor's efforts to stimulate economic development, this budget appears to be a disincentive for small businesses and local job creators. The reduction in the corporate tax rate is something we've long advocated for; however, the increase in the personal income tax will be a direct hit to Maryland's small business community that file as pass through entities on personal returns."

House Minority Leader Jason Buckel, R-District 1B: "It is encouraging to see that Gov. Moore has made closing the deficit and growing Maryland's economy a priority; however, parts of his budget plan may be giving with one hand while taking with the other. I am concerned that the tax increases in his budget may hinder our economic growth and not result in the revenues he anticipates."

House Delegate Jeff Ghrist, R-District 36, the ranking Republican member of the House Appropriations Committee: "While I would have preferred to see broader structural cuts, I do appreciate the work Gov. Moore has done to reduce spending increases. I am concerned that his plan increases spending and relies on significant tax increases. This opens the door for the General Assembly to go wild with Marylander's wallets, as they have no real appetite to reduce spending."

Sen. Paul Corderman, R-District 2, the ranking Republican member of the Senate Budget and Taxation Committee: "A millionaire's tax was tried before and failed, and this 'half-millionaire' tax will meet the same fate. In 2008, Gov. (Martin) O'Malley and the Democratic-controlled General Assembly passed a millionaire's tax, and as a result, Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states. That's income that's now financing services in Virginia, South Carolina and elsewhere."