By Michael Phillips | MDBayNews

In Part 1 of the Maryland at 3% series, we outlined why Maryland’s fiscal environment has pushed tax reform back into the political spotlight. Now, in Part 2, we examine the proposal at the center of this renewed debate: Delegate Eric Bouchat’s plan to replace Maryland’s complex tax code with a uniform 3% rate across income, sales, and business taxes.

The proposal is substantial, sweeping, and structurally different from anything Maryland has debated in decades. Here is the first clear breakdown of what the bill does — and what it would mean for Marylanders.

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The Core Concept: One Rate for Everything

The bill is designed around a simple idea:

No matter how a Marylander earns or spends money, the state taxes it at 3%.

This includes:

• Income tax: 3% flat rate for all individual earners
• Corporate income tax: cut from 8.25% to 3%
• Sales & use tax: cut from 6% to 3%
• Consumption & excise taxes: reduced to 3% where possible
• Capital gains relief, especially for seniors

The simplification is intentional. Bouchat argues that Maryland’s current tax system:

• penalizes wage earners,
• rewards industries with lobbyists,
• produces unstable revenue streams, and
• is out of step with economic and demographic shifts.

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Breaking Down Each Component of the Plan

Below is a point-by-point walkthrough of the actual proposed reforms.

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1. A 3% Flat Income Tax for All Individuals

Maryland currently uses a progressive income tax system with brackets from 2% to 5.75%, plus county piggyback taxes that push effective rates into the 8–9% range.

Bouchat’s bill replaces that structure with:

→ A 3% flat state income tax for all Marylanders

This means:

• No brackets
• No penalty for working overtime
• No bracket creep for workers taking second jobs
• No complexity from deductions or carve-outs
• Greater take-home pay for most middle-income earners
• A dramatic shift for high earners, who currently pay the top rate

Economically, a flat income tax benefits:

• workers with fluctuating income
• parents with multiple jobs
• tradespeople
• police, nurses, firefighters working overtime
• self-employed Marylanders
• small business owners reporting pass-through income

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2. Corporate Income Tax Cut from 8.25% to 3%

Maryland’s corporate tax rate is the 7th highest in the nation.

The proposal would:

→ Cut the corporate rate to 3% — one of the lowest in the U.S.

Supporters argue this would:

• attract new businesses
• reduce the incentive for companies to relocate across state lines
• increase job creation
• give small and mid-sized companies more room to grow

Critics will argue it is too aggressive and may reduce revenue.
This debate is addressed in Part 7 of the series.

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3. State Sales Tax Cut from 6% to 3%

One of the most visible changes for consumers:

→ Sales tax cut in half, from 6% to 3%

This is immediate relief for:

• families
• low-income earners
• retirees
• renters
• people living paycheck to paycheck

Since lower-income households pay a disproportionate share of their income in sales taxes, this part of the proposal is progressive in effect, even though the income tax piece is flat.

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4. “Unified 3% Harvest Rate” — The Stabilization Logic

Bouchat argues the most important part of the plan is not the cuts — but the stability created by a single rate across:

• wages
• salaries
• investments
• corporate profits
• consumption

His argument is simple:

Maryland’s revenue system becomes more predictable when every revenue stream is taxed at the same rate.

Right now:

• Maryland heavily depends on wage earners
• Retiring boomers are shifting to investment income
• Younger workers spend more than they save
• Remote workers can easily relocate
• Maryland’s progressive system becomes unstable as the workforce changes

A unified 3% rate prevents revenue shocks when:

• wages fall
• investment income rises
• consumer spending fluctuates
• demographics shift

This is the part of the bill that fiscal analysts will study most closely.

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5. Capital Gains Relief for Seniors

The proposal includes targeted exemptions on the first portion of capital gains for retirees — recognizing that retirees rely heavily on:

• investment income
• 401(k) withdrawals
• the sale of long-held assets

This is politically significant because:

• seniors vote
• seniors stay informed
• seniors are leaving Maryland in high numbers

Any reform targeting this demographic has statewide implications.

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6. Simplification: Ending Credits, Carve-Outs, and Special-Interest Tax Rules

One of the most consequential aspects of the plan is what it removes, not what it adds.

Maryland’s current code includes:

• industry carve-outs
• targeted tax credits
• complex deductions
• lobbyist-driven exemptions
• multi-page business rules

Under the flat-tax model:

→ Almost all carve-outs are eliminated.

→ The code becomes simple, uniform, and transparent.
→ Special-interest advantages disappear.**

This will be deeply unpopular with powerful Annapolis lobbying groups.

And deeply popular with working families and small business owners who never benefit from those carve-outs.

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7. Fiscal Guardrails: Can a 3% System Pay for Maryland’s Obligations?

Bouchat believes the answer is yes, arguing that:

• simplification expands the tax base
• lower taxes increase economic activity
• business investment rises
• Maryland becomes more competitive
• outmigration slows
• revenues stabilize across categories

Critics will argue the opposite.

The question of fiscal sustainability will be fully addressed in Part 7: Can Maryland Afford It?

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Who Benefits Most From the Plan?

Working families

More take-home pay. Lower sales taxes. No overtime penalties.

Small and mid-sized businesses

Lower rates. Less complexity.

Seniors

More predictable tax burden. Targeted capital gains relief.

Entrepreneurs and investors

Maryland becomes a more competitive jurisdiction.

Legislators

It removes the pressure to approve dozens of carve-out bills every session.

Marylanders without lobbyists

The playing field is leveled.

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Who Loses?

• Industries with special tax deals
• Companies that benefit from current credits
• High-income earners who currently use complex deductions
• Lobbyists who negotiate tax carve-outs
• State agencies that grow via tax complexity
• Local governments if piggyback systems are forced to change

These tensions will drive much of the political debate.

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What Comes Next?

Part 3 of the series will examine the political and structural problem that many Marylanders never see:

Maryland’s tax system is shaped heavily by lobbyists, not by working families.

And a 3% flat-tax model threatens the architecture of that system.

Part 3 — How Maryland’s Tax Code Became a Playground for Lobbyists
is coming next.