The United Kingdom’s Cautionary Tale For Maryland Governor Wes Moore

The United Kingdom’s capital gains tax rate rose from 18% to 24% in April. The subsequent drop in capital gains tax collections following last year’s announcement of that tax hike, however, might end up serving as a portent of the unintended consequences that could be coming to Maryland, where Governor Wes Moore (D-Md.) recently enacted a new budget that raises taxes on wage and capital gains income.

“According to data from HM Revenue & Customs, capital gains tax (CGT) receipts fell to £13 billion in the 12 months to March 2025, down 10% from £14.5 billion in the same period last year,” the Times of London reported on April 25. The drop in capital gains tax collections is attributed to a pause in asset sales and “a trend of high-net-worth individuals leaving the UK.”

Governor Wes Moore approved a new budget in May that raises the state tax on capital gains and also imposes higher tax rates on wage income. Governor Moore’s first budget raises personal income tax rates for some Marylanders by as much as 13%, taking the top rate from 5.75% to as high as 6.5%, depending on income level. Some Maryland residents, meanwhile, are hit with a more than 47% increase in their state capital gains tax rate. A May 21 RSM report summarizes the tax hikes in Maryland’s new budget:

“Effective July 1, 2025, and applicable to taxable years beginning after Dec. 31, 2024, the budget legislation creates two new individual income tax brackets on high earners. Individual filers with income between $250,001 and $500,000 will remain subject to the tax at a rate of 5.75%. Individuals with taxable income of $500,001 through $1 million will be subject to a new rate of 6.25%, and taxable income exceeding $1 million will be subject to a rate of 6.5%. Joint filers with income between $300,001 and $600,000 will remain subject to the tax at a rate of 5.75%. Joint filers with income between $600,001 and $1,200,000 and joint filers with income in excess of $1,200,000, will be subject to the new 6.25% and 6.5%, respectively.”

“Additional individual tax changes include a new 2% tax on capital gains over $350,000, and individual taxpayer itemized deductions are reduced by 7.5% of the excess of federal adjusted gross income over $100,000 for married individuals filing separately, or over $200,000 for all other filers,” the report added. In addition to the income tax hikes, the new Maryland budget also includes a provision allowing local officials to raise county income taxes from 3.20% to 3.30%.

Even before recent developments in the U.K., Europe was already awash with examples of failed efforts to target the wealthy with higher taxes.

“The experiment with the wealth tax in Europe was a failure in many countries,” National Public Radio’s Planet Money conceded in 2019. “France’s wealth tax contributed to the exodus of an estimated 42,000 millionaires between 2000 and 2012, among other problems,” prompting French President Emmanuel Macron to repeal the tax in 2019.

“In 1990, twelve countries in Europe had a wealth tax” Planet Money added. “Today, there are only three: Norway, Spain, and Switzerland. According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn’t raise much revenue.”

Governor Moore didn’t need the new reminder from Europe about the negative unintended consequences that have followed previous attempts to target upper-income households with higher tax rates. Governor Moore’s predecessor, Martin O’Malley (D-Md.), already provided such a cautionary tale.

Then-Governor O’Malley (D) hiked Maryland’s top income tax rate in 2007 to 6.25% temporarily for all household earnings above one million dollars. There were fewer Marylanders who reported earning more than one million dollars, however, in the years subsequent to O’Malley’s soak-the-rich tax increase. In fact, a 2009 Wall Street Journal editorial reported that a third of Maryland’s million dollar-plus earners had disappeared from the tax rolls in the year following Governor O’Malley’s top rate hike.

“In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April,” the Wall Street Journal noted. A year later, however, that number had shrunk to 2,000, with the state comptroller’s office calling it a “substantial decline.”

“On those missing returns, the government collects 6.25% of nothing,” the Journal added. “Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.”

Other such cautionary tales have been documented recently. Stanford researchers, for example, found a similar trend following voter approval in 2012 of Proposition 30, which raised California’s top marginal income tax rate.

Governor Moore’s staff, in addition to challenging the premise that the tax hikes enacted by Governor O’Malley chased millionaires out of Maryland, expressed confidence that the new state budget will put Maryland on a better path. “After years of economic stagnation, it was clear Maryland had much to accomplish to undo the economic underperformance seen from 2017 to 2022,” noted Carter Elliott, senior press secretary for Governor Moore. “During that time, Maryland’s economy flatlined while the rest of the country grew.”

“Governor Moore worked with the leaders of the general assembly this session to turn this year’s long-forecasted deficit into a $315 million surplus, all while providing 94% of Marylanders with a tax cut or no change in their income taxes,” Elliott added. “The governor also ensured to preserve 8% in Maryland’s rainy day fund —more than the recommended amount.”

The experience in Washington State and Massachusetts could provide Governor Moore and his team with reason to be optimistic. After the recent imposition of a 7% capital gains tax in Washington and a new 9% income tax rate for upper-income households in Massachusetts, the number of millionaire filers in both states has thus far not declined.

Wes Moore’s Budget Makes Maryland A Tax Hiking Outlier

While Governor Moore and Maryland legislators are raising taxes on capital gains and wages, they are an outlier. Most states have been moving in the opposite direction for years, a trend that has continued in 2025. Governors and lawmakers in Oklahoma and Mississippi, for example, enacted legislation this year that will completely phase out their state income taxes over time.

The South Carolina House also passed legislation this spring to phase out their income tax, which the state Senate will take up in January. More recently, the Republicans who run the Ohio Senate will soon pass a new state budget that moves the state from two income tax brackets with a top rate of 3.5%, down to a single rate of 2.75%.

“There are 14 states that have a flat tax,” said Ohio Senate President Rob McColley (R), who many consider a top contender to be Ohio’s next Lieutenant Governor. “This budget maintains our commitment of reducing the tax burden on Ohioans over the last several General Assemblies.”

“These tax cuts further our pro-growth agenda that has been paying off for Ohio in the last few years,” Senate Finance Committee Chairman Brian Chavez (R) added. “These cuts not only reward our hardworking taxpayers with the breaks they deserve, they serve as magnets to our state for businesses from all over the world, as we have seen with high-tech companies flocking to Ohio.”

Not only have many governors and legislatures taken steps to reduce, flatten, and even fully phaseout state income taxes, many lawmakers have had success when it comes to improving the tax treatment of investment income in their states. A few weeks before Governor Moore raised Maryland’s capital gains tax, for example, Missouri lawmakers passed a bill phasing out their capital gains tax.

Days after Missouri lawmakers made their state the first to repeal its capital gains tax, Texas lawmakers took steps to ensure they’ll never have a capital gains tax, referring a constitutional amendment to the ballot that would prohibit the institution of a capital gains tax. Texas already has a similar constitutional prohibition on taxing wage income.

“Voters will vote on this to ensure that we’re not going to have a capital gains tax in Texas,” Governor Greg Abbott (R) said after signing the joint resolution on May 14 to refer the capital gains tax ban to the ballot. Governor Abbott is set to further improve the Lone Star State’s business tax climate when he signs Senate Bill 2206, legislation now on his desk that extends and strengthens the state’s franchise tax credit for research and development costs.

The recent actions by Governor Abbott, Governor Kevin Stitt (R-Okla.), Governor Tate Reeves (R-Miss.), and their counterparts in many other states underscore the fact that not only is Maryland a relatively small state, it’s also a fiscal policy outlier that is not indicative of the direction in which most states are heading when it comes to tax reform.