Maryland General Fund Revenues Outlook 2022-2024

The Maryland General Fund revenues for fiscal years 2022-2024 show fluctuations in income taxes, sales taxes, and other revenues. Personal income tax and corporate income tax experienced variations, while ongoing revenues decreased. Revenue growth is moderating across different tax categories. Various funds and regulations impact the distribution and allocation of revenues for the upcoming years.

• Maryland
• General Fund
• Revenues
• Outlook
• Fiscal Years

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1. REVENUE ESTIMATES AND ECONOMIC OUTLOOK December 15, 2022 Robert J. Rehrmann Chief Bureau of Revenue Estimates

2. Maryland General Fund Revenues Fiscal Years 2022 - 2024 FY 2023 FY 2024 FY 2022 Actual September Estimate December Estimate September Estimate December Estimate $ Thousands INCOME TAXES: Individual Corporation Difference Growth Difference Growth 13,548,045 1,700,268 14,091,877 1,477,464 14,052,616 1,477,464 (39,261) 3.7% -13.1% 14,846,299 1,622,505 14,667,670 1,622,505 (178,629) 4.4% 9.8% - - Total 15,248,313 15,569,341 15,530,080 (39,261) 1.8% 16,468,804 16,290,175 (178,629) 4.9% SALES AND USE TAXES 5,966,843 6,150,168 6,150,168 - 3.1% 6,194,835 6,194,835 - 0.7% STATE LOTTERY 635,075 650,458 636,451 (14,007) 0.2% 650,386 622,942 (27,445) -2.1% OTHER REVENUES Business Franchise Taxes Tax on Insurance Companies Estate and Inheritance Taxes 264,443 631,380 266,055 219,156 607,272 250,427 222,983 648,027 268,741 3,826 40,756 18,314 -15.7% 2.6% 1.0% 223,039 623,013 231,055 223,872 664,910 229,043 41,897 (2,012) 832 0.4% 2.6% -14.8% Tobacco Tax Alcoholic Beverages Excise Tax 479,158 39,076 482,248 33,688 463,766 35,911 (18,482) 2,223 -3.2% -8.1% 437,477 33,970 424,538 35,890 (12,938) 1,919 -8.5% -0.1% District Courts Clerks of the Court 41,256 36,893 46,948 33,304 40,269 33,304 (6,679) -2.4% -9.7% 45,813 33,178 42,088 33,178 (3,725) 4.5% -0.4% - - Hospital Patient Recoveries Interest on Investments Miscellaneous 68,829 48,978 331,920 62,300 75,000 403,082 62,300 125,000 422,228 50,000 19,146 - -9.5% 155.2% 27.2% 63,200 50,000 321,864 63,200 50,000 335,196 13,332 - - 1.4% -60.0% -20.6% Total 2,207,988 2,213,424 2,322,528 109,104 5.2% 2,062,611 2,101,916 39,305 -9.5% 24,058,218 24,583,391 24,639,226 55,835 2.4% 25,376,636 25,209,867 (166,769) 2.3% Total Current Revenues Extraordinary Revenues 1 Rental Housing Fund 2 Blueprint for Maryland s Future Fund 3 Revenue Volatility Cap 4 16,311 (30,000) (800,000) (100,000) - - (800,000) (100,000) - - - - - - -100.0% (120,000) - - - (120,000) - - - - - - - - - 20.0% GRAND TOTAL5 24,044,529 23,683,391 23,739,226 55,835 -1.3% 25,256,636 25,089,867 (166,769) 5.7% 1 Amount reflects a payment to the General Fund from the Maryland Technology Development Corporation (TEDCO). 2 Chapters 336 & 337 of 2022 diverted $30 million from individual income tax revenues to the Rental Housing Fund. 3 Chapter 33 of 2022 diverts $800 million from individual income tax revenues to the Blueprint Fund. 4 Established by Chapters 4 & 550 of 2017 and amended by several succeeding Budget Reconciliation And Financing Acts. 5 In FY 2022, $870.3 million of specified income tax revenues was transferred to the Rainy Day Fund and Fiscal Responsibility Fund per the requirements of the Revenue Volatility Cap. Board of Revenue Estimates, December 15, 2022

3. 3 Summary of December Changes Fiscal Year 2023 Fiscal Year 2024 % Growth From Prior Year % Growth From Prior Year $ Change From Est $ Change From Est Personal Income Tax ($39.3) 3.7% ($178.6) 4.4% Corporate Income Tax $0 -13.1% $0 9.8% Sales Tax $0 3.1% $0 0.7% Other $95.1 4.1% $11.9 -7.9% Total Ongoing Revenues $55.8 2.4% ($166.8) 2.3% Notes: dollars in millions; amounts may not sum from rounding.

4. 4 Revenue Growth is Moderating 13.6% 13.5% 12.5% 5.0% 4.4% 3.7% 3.6% 3.1% 2.8% 2.4% 2.3% 0.7% Individual Income Tax Sales and Use Tax Ongoing GF FY 2014-19 FY 2021-2022 2023E 2024E Source: Bureau of Revenue Estimates

5. 5 Economic Outlook Economy has slowed compared to recent, unusually strong growth but labor market and consumer spending continue to grow Risk of recession remains elevated and is a downside risk to our forecast Inflation has declined modestly, but remains well-above historic norms Persistent inflation requires that the Federal Reserve continue to tighten monetary policy This will continue to slow economic growth As in previous forecasts, the December forecast has significant slowdown in growth beginning in calendar 2023

6. 6 What Has Changed Since September? Our year-to-date revenue is performing as expected in September Economic forecasts for U.S. and Maryland now have lower near-term expectations for growth September forecast adopted a more conservative outlook than other forecasts, minimizing the impact on the December forecast Sales and Use, Corporate Income Tax, and Withholding revenue projections are unchanged Updated capital gains forecast projects greater decreases, particularly in tax year 2022 through 2023

7. 7 Forecast Risks Risk of recession remains elevated and poses downside risk to our forecast, particularly in FY 2024 Volatile income sources remain elevated and could decrease more than expected if economic conditions deteriorate Labor market continues to add jobs, but recent layoff announcements cloud the picture Maryland layoff notices in calendar 2022 are in line with normal years, but include a significant portion within the Professional, Scientific, and Technical Industries Although major revenue sources do not show a concerning slowdown, other revenues have recently slowed more than expected Recent improvements to consumer finances show signs of reversing

8. 8 10.0 Consumer Price Index Percentage Change - by Component 8.0 Food Energy All Other Items Total 6.0 4.0 2.0 0.0 -2.0 2019 2020 2021 2022 Source: U.S. Bureau of Labor Statistics; Bureau of Revenue Estimates

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11. 11 Personal Income Forecast by Component 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 8% 6% 4% 2% 0% -2% -4% Net Earnings Transfers Net Dividends, Interest, and Rent Business Income Source: Bureau of Revenue Estimates

12. 12 Withholding Revenue by Fiscal Year 7.4% 7.2% 5.8% 5.7% 5.3% 5.1% 4.6% 4.5% 3.3% 3.2% 0.0% FY 18 FY 19 FY 20 FY 21 FY 22 FY 23E FY 24E FY 25E FY 26E FY 27E Source: Bureau of Revenue Estimates

13. 13 FY 2023 Sales and Use - Total Collections Forecast by Quarter 8.0% 7.3% 6.8% 7.0% 5.9% 6.0% 5.0% 4.3% 4.0% 3.0% 2.0% 2.0% 1.6% 1.0% 0.0% Q1 Q2* Q3 Q4 Forecast Actual Note: Quarter 2 actuals reflect October and November only Source: Bureau of Revenue Estimates

14. 14 Most Asset Prices Have Declined Significantly 2.7% 5.0% 0.0% -5.0% -10.0% -11.6% -15.0% -17.5% -20.0% -25.0% -30.0% -29.2% -35.0% S&P 500 NASDAQ U.S. Bond Index MD Home Prices Note: Reflects year-to-date change as of 12/11/2022 except Maryland home prices which are YoY Change in the month of October Source: Bureau of Revenue Estimates

15. 15 Capital Gains Forecast By Tax Year 2022 2023 2024 0.0% -5.0% -6.2% -6.8% -9.3% -10.0% -13.9% -15.0% -17.6% -19.3% -20.0% -25.0% September December Source: Bureau of Revenue Estimates

16. 16 Capital Gains Forecast by Tax Year ($ in Billions) $30.0 33% (Two-Year Decline) $25.0 $20.0 76% Decline $15.0 67% Decline $10.0 $5.0 $0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Last History September Forecast December Forecast Source: Bureau of Revenue Estimates

17. 17 Tax Year 2022 Personal Income Tax Comparison 10.0% 6.9% 6.9% 4.4% 5.0% 4.0% 2.7% 1.8% 0.0% -0.2% -0.8% -3.6% -5.0% -6.3% -10.0% September December -10.1% -13.6% -15.0% Withholding Estimated Payments Fiduciaries Final Payments Refunds Net Liability Source: Bureau of Revenue Estimates

18. 18 In Summary Economy has slowed compared to recent, unusually strong growth but labor market and consumer spending continue to grow As in previous forecasts, the December forecast has significant slowdown in growth FY 2023 revenues are performing as expected in September Risk of recession poses downside risk to forecast Inflation has recently moderately, but must decrease significantly more before the Federal Reserve can stop interest rate increases Nonwage income is at very high levels and remains a risk Typically, these peaks are not sustainable for extended periods of time Magnitude and timing of any downturn is particularly difficult to estimate Nonwage income downturns typically occur rapidly but then also grow back rapidly

19. Thank You Robert J. Rehrmann Chief, Bureau of Revenue Estimates Comptroller of Maryland rrehrmann@marylandtaxes.gov