Bill review: Maryland Standard Deduction Increase (MD HB411)

[PavelMakarchuk]

Bill Review: Maryland Standard Deduction Increase (HB411)

Reform ID: md-hb411 | State: MD
Bill text: https://mgaleg.maryland.gov/mgawebsite/Legislation/Details/hb0411?ys=2026RS
Description: Increases the Maryland standard deduction from $3,350 to $4,100 for single filers and from $6,700 to $8,200 for joint filers, heads of household, and surviving spouses, effective tax year 2026. Also updates the COLA base amounts for future indexing.

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current	Proposed	Bill Reference
Standard Deduction (Single/MFS)	gov.states.md.tax.income.deductions.standard.flat_deduction.amount.SINGLE	$3,350	$4,100	Section 1, amending Tax-General Article § 10-217(b)(1)
Standard Deduction (Joint/HoH/Surviving Spouse)	gov.states.md.tax.income.deductions.standard.flat_deduction.amount.JOINT	$6,700	$8,200	Section 1, amending Tax-General Article § 10-217(b)(2)

What we don't model

• No other provisions in this bill

COLA handling

The bill sets new base amounts ($4,100/$8,200) subject to the existing COLA mechanism (IRC § 1(f)(3), calendar year 2024 base). Since PE's reform mechanism overrides parameter values without re-applying uprating, we manually computed the COLA-adjusted values for each year using PE's gov.irs.uprating index and rounded down to the nearest $50 (matching the statute):

Year	Single (Reform)	Single (Baseline)	Joint (Reform)	Joint (Baseline)
2026	$4,100	$3,400	$8,200	$6,850
2027	$4,200	$3,500	$8,400	$7,000
2028	$4,250	$3,550	$8,550	$7,150
2029	$4,350	$3,650	$8,750	$7,300
2030	$4,450	$3,700	$8,950	$7,450

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Validation

External estimates

Source	Estimate	Period	Link
DLS Fiscal and Policy Note	-$149.6M state GF	FY2027	Fiscal Note
DLS Fiscal and Policy Note	-$115.2M / -$119.6M / -$124.3M / -$128.9M	FY2028-FY2031	Fiscal Note
DLS Local Impact	-$88.2M local income tax	FY2027	Fiscal Note

Back-of-envelope check

Standard deduction increase: ~$700 (single) / ~$1,400 (joint) per year (after COLA)
MD standard deduction filers: ~3M x 75% = ~2.25M
Weighted marginal rate: ~4.5%
Tax savings per filer: ~$1,050 weighted avg increase x 4.5% = $47
Total state: 2.25M x $47 = **$106M/year**

PE vs DLS year-over-year comparison

Tax Year	PE Estimate	DLS FY	DLS Estimate	Difference
2026	-$94.7M	FY2027	-$149.6M	N/A (FY2027 blends TY2026+TY2027)
2027	-$98.6M	FY2028	-$115.2M	-14.4%
2028	-$99.8M	FY2029	-$119.6M	-16.6%
2029	-$103.8M	FY2030	-$124.3M	-16.5%
2030	-$112.3M	FY2031	-$128.9M	-12.9%

Verdict: PE consistently runs 13-17% below DLS across all years, with both series growing over time as the COLA-adjusted deduction increases compound. The consistent gap reflects the difference between PE's Enhanced CPS microdata and DLS's Comptroller tax return data (actual filer counts and income distributions). The DLS FY2027 figure (-$149.6M) is inflated because it is a transition fiscal year blending parts of TY2026 and TY2027. Both PE and DLS show the same trend: growing cost over time due to COLA from the higher base.

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Key results (multi-year)

Year	Revenue Impact	Poverty Change	Winners	Losers
2026	-$94,666,268	-0.23%	44.6%	0.0%
2027	-$98,592,902	--	--	--
2028	-$99,763,399	--	--	--
2029	-$103,834,136	--	--	--
2030	-$112,318,878	--	--	--

Decile impact (TY 2026)

Decile	Relative Change	Avg Benefit
1	0.06%	$15
2	0.07%	$32
3	0.06%	$38
4	0.06%	$46
5	0.05%	$47
6	0.04%	$50
7	0.04%	$49
8	0.03%	$54
9	0.03%	$66
10	0.01%	$72

District impacts (TY 2026)

District	Avg Benefit	Winners	Losers	Poverty Change
MD-1	$42	45%	0%	-0.39%
MD-2	$43	44%	0%	-0.14%
MD-3	$40	42%	0%	-0.22%
MD-4	$45	48%	0%	-0.06%
MD-5	$42	44%	0%	-0.13%
MD-6	$44	44%	0%	-0.11%
MD-7	$43	47%	0%	-0.33%
MD-8	$47	43%	0%	-0.54%

Parameter changes

Parameter	Period	Value	Bill Reference
...flat_deduction.amount.SINGLE	2026	$4,100	10-217(b)(1)
...flat_deduction.amount.SINGLE	2027	$4,200 (COLA)	10-217(b)(1), (c)
...flat_deduction.amount.SINGLE	2028	$4,250 (COLA)	10-217(b)(1), (c)
...flat_deduction.amount.SINGLE	2029	$4,350 (COLA)	10-217(b)(1), (c)
...flat_deduction.amount.SINGLE	2030	$4,450 (COLA)	10-217(b)(1), (c)
...flat_deduction.amount.JOINT	2026	$8,200	10-217(b)(2)
...flat_deduction.amount.JOINT	2027	$8,400 (COLA)	10-217(b)(2), (c)
...flat_deduction.amount.JOINT	2028	$8,550 (COLA)	10-217(b)(2), (c)
...flat_deduction.amount.JOINT	2029	$8,750 (COLA)	10-217(b)(2), (c)
...flat_deduction.amount.JOINT	2030	$8,950 (COLA)	10-217(b)(2), (c)

(SEPARATE = same as SINGLE; HEAD_OF_HOUSEHOLD and SURVIVING_SPOUSE = same as JOINT)

Data quality notes

• Uses PolicyEngine's Enhanced CPS microdata for Maryland, projected to each analysis year
• PE consistently runs 13-17% below DLS estimates, reflecting the CPS-vs-Comptroller-data difference
• 44.6% of households benefit; the remaining 55.4% are itemizers or have insufficient income
• 0% losers: pure deduction increase with no phase-outs
• COLA values computed using PE's gov.irs.uprating (chained CPI) with 2026 as the base year for the new amounts, rounded down to nearest $50 per statute
• DLS fiscal note also reports local income tax revenue loss (-$88.2M FY2027, ~$68-76M/yr thereafter); PE models state income tax only

Reform parameters JSON

{
  "gov.states.md.tax.income.deductions.standard.flat_deduction.amount.SINGLE": {
    "2026-01-01.2026-12-31": 4100,
    "2027-01-01.2027-12-31": 4200,
    "2028-01-01.2028-12-31": 4250,
    "2029-01-01.2029-12-31": 4350,
    "2030-01-01.2100-12-31": 4450
  },
  "gov.states.md.tax.income.deductions.standard.flat_deduction.amount.SEPARATE": {
    "2026-01-01.2026-12-31": 4100,
    "2027-01-01.2027-12-31": 4200,
    "2028-01-01.2028-12-31": 4250,
    "2029-01-01.2029-12-31": 4350,
    "2030-01-01.2100-12-31": 4450
  },
  "gov.states.md.tax.income.deductions.standard.flat_deduction.amount.JOINT": {
    "2026-01-01.2026-12-31": 8200,
    "2027-01-01.2027-12-31": 8400,
    "2028-01-01.2028-12-31": 8550,
    "2029-01-01.2029-12-31": 8750,
    "2030-01-01.2100-12-31": 8950
  },
  "gov.states.md.tax.income.deductions.standard.flat_deduction.amount.HEAD_OF_HOUSEHOLD": {
    "2026-01-01.2026-12-31": 8200,
    "2027-01-01.2027-12-31": 8400,
    "2028-01-01.2028-12-31": 8550,
    "2029-01-01.2029-12-31": 8750,
    "2030-01-01.2100-12-31": 8950
  },
  "gov.states.md.tax.income.deductions.standard.flat_deduction.amount.SURVIVING_SPOUSE": {
    "2026-01-01.2026-12-31": 8200,
    "2027-01-01.2027-12-31": 8400,
    "2028-01-01.2028-12-31": 8550,
    "2029-01-01.2029-12-31": 8750,
    "2030-01-01.2100-12-31": 8950
  }
}

Versions

• PolicyEngine US: 1.499.0
• Dataset: policyengine-us-data v1.17.0
• Computed: 2026-02-17

[DTrim99]

We should hold off until we add Maryland local income taxes to the model, then rerun the impacts to see if we get closer.