Maryland Ranks 46th for Taxpayers — And the Reasons Are Structural, Not Accidental

By MDBayNews Staff

Maryland has landed 46th out of 50 in the Tax Foundation’s latest State Business Tax Climate Index, placing it among the worst states in the country for taxpayers — and firmly in the bottom tier alongside New York, New Jersey, and California.

The ranking, highlighted this week by economist Stephen Moore, is not an ideological stunt. It reflects long-standing policy choices that have steadily made Maryland a high-cost, low-flexibility state for families, small businesses, and employers.

For residents already grappling with rising housing costs, utility bills, and local tax hikes, the ranking confirms what many feel daily: Maryland’s tax system is stacked against growth and mobility.

What the Tax Foundation Measures — And Why It Matters

The Tax Foundation index does not simply measure how much revenue a state collects. It evaluates how competitive, neutral, and predictable a state’s tax system is across five major categories:

• Individual income taxes
• Corporate income taxes
• Sales taxes
• Property taxes
• Unemployment insurance taxes

Maryland performs poorly across multiple categories — not because of a single tax rate, but because of complexity, layering, and punitive marginal structures.

Why Maryland Ranks So Low

1. High and Layered Income Taxes

Maryland’s top marginal income tax rate is already among the nation’s highest, but the real damage comes from county piggyback taxes, which stack on top of state rates. In some counties, combined marginal rates approach or exceed those of states commonly cited as cautionary tales.

This structure penalizes upward mobility — earning more often means keeping less, especially for professionals, entrepreneurs, and dual-income households.

2. An Uncompetitive Corporate Tax Climate

Maryland’s corporate tax structure is widely viewed as hostile to business formation and expansion, particularly for small and mid-sized firms that lack the resources to navigate complex compliance rules.

Rather than broadening the base and lowering rates, lawmakers have favored targeted credits and carve-outs, creating a system that rewards political access instead of economic productivity.

3. Sales Tax Rigidities and Narrow Bases

Maryland’s sales tax system is comparatively inflexible and uneven, creating distortions that affect both consumers and retailers. Certain sectors bear disproportionate burdens while others escape taxation entirely, undermining neutrality and predictability.

4. A Policy Culture That Treats Taxpayers as an Endless Revenue Source

Perhaps most concerning is the broader trend: when Maryland faces fiscal pressure, the reflex is almost always higher taxes or new fees, not structural reform or spending restraint.

In recent years, lawmakers have explored or enacted:

• New digital advertising taxes
• Expanded service taxes
• Higher energy and environmental fees
• Proposals affecting retirement income and investment activity

These moves signal to residents and employers that Maryland sees success as taxable, not replicable.

The Regional Consequences

Maryland’s poor ranking has real implications in a competitive region.

Virginia consistently ranks far higher on business climate and tax competitiveness. Pennsylvania, despite its own flaws, has made targeted reforms to remain attractive. Maryland, by contrast, risks becoming a pass-through state — where people work temporarily but choose to live, retire, or expand businesses elsewhere.

Remote work has only accelerated this dynamic.

What Reform Would Actually Look Like in Maryland

Maryland’s low ranking isn’t inevitable. Other high-cost states have improved competitiveness without gutting services. Real reform would focus on structure, predictability, and neutrality, not gimmicks.

1. Flatten and Simplify the Income Tax

• Reduce the number of brackets and lower top marginal rates.
• Cap or reform county piggyback taxes to prevent extreme combined rates.
• Make Maryland competitive with neighboring states for professionals and remote workers.

2. Replace Targeted Credits With Broad-Based Relief

• Eliminate politically favored carve-outs and special-interest credits.
• Lower rates across the board instead of rewarding lobbying power.
• Create a neutral tax code where success isn’t dependent on connections.

3. Commit to Stability

• End year-to-year tax experimentation and “trial balloon” revenue schemes.
• Businesses and families plan long-term; Maryland policy currently does not.
• Lock in reforms for multi-year periods to restore confidence.

4. Control Spending Before Raising Taxes

• Conduct performance audits of major agencies and programs.
• Tie new spending to measurable outcomes.
• Treat taxpayers as stakeholders, not fallback funding sources.

Bottom line: Reform isn’t about austerity. It’s about stop punishing productivity and restoring trust that Maryland won’t change the rules midstream.

County-by-County Tax Pressure in Maryland

Maryland’s tax burden isn’t uniform. County-level taxes dramatically change what residents actually pay — and where they choose to live.

Highest Combined Tax Pressure

• Montgomery County
  Among the highest local income tax rates, steep property taxes, high cost of living.
• Prince George’s County
  High combined income and property taxes with fewer offsetting economic advantages.
• Baltimore City
  Nation-leading property tax rate layered on top of state income taxes.

Mid-Range Pressure

• Howard County
  High incomes soften the blow, but marginal rates still discourage mobility.
• Anne Arundel County
  Moderate property taxes, but state-level burdens still dominate.

Lowest Relative Pressure (Still High by National Standards)

• Harford County
  Lower local income taxes, more competitive for middle-income households.
• Carroll County
  Historically more restrained tax policy, attracting commuters and small businesses.
• Frederick County
  Growing population reflects flight from higher-tax jurisdictions to the south and east.

Key takeaway: Maryland’s tax competitiveness problem isn’t just statewide — it’s hyper-local, and residents vote with their feet when they can.

This Isn’t About Red vs. Blue — It’s About Math

Defenders of Maryland’s tax structure often dismiss criticism as partisan. But the index evaluates outcomes, not rhetoric. High taxes combined with complexity, instability, and constant policy churn produce predictable results.

Maryland’s 46th-place ranking is not a fluke.
It is the cumulative effect of years of decisions that prioritized short-term revenue over long-term competitiveness.

The Question Lawmakers Won’t Answer

The real issue is not whether Maryland can raise taxes.
It’s whether it can afford not to change course.

As neighboring states modernize their tax codes, Maryland continues to double down on a model that assumes residents will simply absorb higher costs forever.

The Tax Foundation’s ranking is not an insult.
It’s a warning.

And Maryland is running out of room to ignore it.

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