A group of Baltimore City residents has been petitioning to reduce the city’s property tax rate from 2.248 percent to 1.2 percent. They argue that Baltimore’s tax rate, which is nearly double that of neighboring counties, is unsustainable. While this point has merit, their proposal would likely devastate Baltimore’s budget, cost the city hundreds of millions of dollars annually, and result in the gutting of essential city services.
The city finds itself trapped between uncompetitive tax rates and potential bankruptcy.
However, this dilemma stems from viewing a state-level problem through a city-level lens. There’s no magical solution for Baltimore alone. The root cause of the problem is not Baltimore City’s mismanagement, it’s economic segregation. Wealthy counties benefit from separating themselves from low-income and middle-class families. Consider this micro-example: In a county with homes valued at $1 million, $600,000, and $400,000, a 1 percent property tax generates $20,000. In contrast, a county with homes valued at $200,000, $400,000, and $100,000 requires a 2 percent property tax to generate just $14,000. Families in the middle-class county pay double the taxes for fewer services.
This isn’t just a hypothetical; it’s the reality in Maryland:
If you own a $300,000 home in Montgomery County, you’ll pay $2,346 in annual property taxes. In return, you’ll have access to some of the nation’s best schools, well-maintained roads, and a thriving local economy with diverse job opportunities.
For a home of equal value in Baltimore City, you’ll pay $7,080 in annual property taxes. Yet you’ll face underfunded and overcrowded public schools, pothole-ridden streets, inefficient public transportation, and slower emergency response times.
Montgomery County homeowners get more for less because they’ve concentrated in an area predominantly composed of wealthy homeowners. Their high property values allow low tax rates to generate sufficient revenue for robust public programs.
The graph below shows the total value of real property per capita in each county of Maryland. There are striking disparities across the state, with Worcester County having the highest assessment at $335,000 per capita, while Somerset County has the lowest at just $63,000 per capita.
Public policy shouldn’t reward such segregation. Residents of Baltimore City and other economically diverse counties shouldn’t face higher tax rates simply because they live in less economically segregated areas.
In this paper, we propose a simple and more equitable solution: The state should raise its property tax to 1.6 percent on real property and 4 percent on personal property, then share the revenue on a per capita basis with each county. This system will ensure that everyone pays the same rates regardless of where they live, while also helping to equalize school funding and other essential services across the state.
It’s important to note that this proposal isn’t just beneficial for Baltimore City. In fact, the majority of counties in Maryland stand to gain from this approach. Rural counties, in particular, would see significant improvements. The biggest winners under this proposal include Allegany County, Somerset County, and Wicomico County.
This statewide approach offers a path to a more unified Maryland, where zip codes no longer dictate the quality of public services or the weight of tax burdens. By equalizing property tax rates and redistributing revenue fairly, we can foster a sense of shared prosperity and mutual investment across urban, suburban, and rural communities alike.
Types of Property
Maryland’s property tax system is divided into two categories: real property and personal property.
Real property refers to land and anything permanently attached to it. This includes houses, office buildings, factories, and other structures that are fixed to the land. It also encompasses improvements to the land itself, such as fences, driveways, and landscaping. Real property is typically what most people think of when they hear “property tax.”
Personal property, on the other hand, refers to movable assets used by businesses. This category includes items such as office furniture, computers, machinery, tools, and inventory. Unlike real property, personal property is not permanently affixed to land. In Maryland, only businesses are required to pay taxes on personal property; individuals do not pay personal property tax on their household goods or personal vehicles.
The taxation rates and assessment methods for these two types of property differ significantly. Real property is generally assessed at its full market value and taxed at a lower rate, while personal property is often assessed at a percentage of its original cost and taxed at a higher rate. This distinction is important because it affects how different sectors of the economy are taxed and how revenue is generated for local and state governments.
Our proposed plan would affect tax rates for both real and personal property. However, the remainder of this paper will focus exclusively on real property, as it has a more direct impact on the lives of Maryland residents. For clarity, from this point forward, when we refer to ‘property tax,’ we mean real property tax unless otherwise specified.
The Current System
The current property tax system in Maryland operates at multiple levels of government. The state imposes a flat property tax rate of 0.112 percent, while each county sets its own rate. Additionally, municipal governments, present in every county except Baltimore City, Baltimore County, and Howard County, often levy their own property taxes on top of the county and state taxes.
To illustrate this layered approach, consider a homeowner in Annapolis. They pay a municipal tax of 0.738 percent to the city of Annapolis, a county tax of 0.587 percent to Anne Arundel County, and the state tax of 0.112 percent. This results in a total property tax rate of 1.437 percent. In contrast, a resident of Anne Arundel County living outside of Annapolis or Highland Beach would only pay the county and state property taxes, resulting in a lower overall rate.
Property taxes rates vary wildly throughout the state, with the highest rates in Baltimore City and the lowest rates in certain areas of Montgomery County. You can see a full list of the rates here.
Across Maryland, we estimate that property taxes levied by all municipalities, counties, and the state collectively generate approximately $12 billion in annual government revenue.
Proposed Plan
Our plan seeks to simplify Maryland’s complex multi-tiered tax system by implementing a uniform flat rate of 1.6 percent for all property owners across the state. This approach would eliminate the current disparities and ensure equitable taxation regardless of location.
Using data from the Maryland Department of Assessments and Taxation, we project that this 1.6 percent rate, combined with the proposed personal property tax, would generate approximately $15.5 billion in annual revenue. Unlike the current system where wealthy areas retain a larger share of their tax revenue, our plan would distribute this income to counties based on their population.
For instance, Allegany County, comprising about 1 percent of Maryland’s population, would receive a corresponding 1 percent of the total revenue, amounting to roughly $157 million. This represents a significant increase from their current property tax income of $41 million, potentially transforming the county’s budget and capacity to provide services.
This redistribution model aims to level the playing field, ensuring that less affluent or rural counties have access to resources comparable to their wealthier counterparts. By pooling and fairly distributing property tax revenue, we can address the longstanding inequities in public service funding across Maryland’s diverse communities.
Impact on Property Tax Rates
Our analysis of current property tax rates and population data across Maryland reveals that the average Marylander currently pays a 1.26 percent property tax rate. The proposed shift to a uniform 1.6 percent rate statewide would result in an average increase of 27 percent in property taxes.
However, the impact of this rate change would vary significantly among property owners. Approximately 72 percent of property owners would experience an increase in their property taxes, while 28 percent would see a decrease. Baltimore City residents stand to benefit the most, with a projected 32 percent reduction in their property taxes. On the other end of the spectrum, property owners in Montgomery County would face the largest increase.
It’s important to note that the majority of property owners would see a tax increase under this plan because it is designed to generate more overall revenue than the current property tax system. A 1.6 percent rate across the state would generate an extra $3.5 billion in revenue. If the goal were to maintain revenue neutrality, the uniform statewide rate could be set at 1.23 percent or 1.26 percent if current county credits were maintained.
Impact on County Budgets
Under our proposal, the state would collect a total of $15.5 billion in property tax revenue. After retaining the $1.1 billion it currently collects, the remaining $14.4 billion would be distributed to counties on a strictly per capita basis. This means each county would receive approximately $2,342 for every resident.
The impact on county budgets would vary. Most counties would see an increase in their available funds. Baltimore City would gain a surplus of $56 million. Prince George’s County would see a substantial increase of $1.14 billion, the largest in absolute terms. Allegany would gain $116 million, or $1,731 per capita, the largest per capita increase in the state.
Not all counties would see increases, however. Howard County, for example, would face the largest decrease, with a deficit of $133 million. These changes reflect the redistributive nature of the proposal. Counties with lower property values or higher current tax rates generally stand to gain the most, while wealthier counties with lower current rates may see smaller increases or even decreases in their budgets.
This redistribution of resources would have significant implications for county operations and services across the state. For the majority of counties that would see budget increases, the additional funds could allow for substantial improvements in public services, investments in infrastructure, or potentially even reductions in other local taxes. These counties, which have historically struggled with limited resources, would have new opportunities to enhance the quality of life for their residents.
On the other hand, counties facing deficits under this new system would need to carefully adjust their budgets. However, it’s important to note that these counties have historically benefited from higher property values and often lower tax rates, which has allowed them to provide high-quality services with relatively low tax burdens. While the transition may present challenges, the state could explore methods to smooth this process, ensuring that all counties can maintain essential services while moving towards a more equitable distribution of resources statewide.
County Distributional Effect
While the previous section focused on the impact of our proposal on county budgets relative to the status quo, this section highlights the distributional effect by comparing the total property taxes that each county will pay versus the total funding they will receive from the state’s per capita revenue sharing.
We find that Allegany County, Somerset County, Wicomico County, Baltimore City, and Caroline County would see the largest net inflow of money into their communities. These areas, which have historically struggled with lower property values and tax bases, stand to gain significantly from this redistribution.
Conversely, Garrett County, Montgomery County, Talbot County, Calvert County, and Worcester County would become the largest net contributors. These areas, which currently benefit from higher property values and often lower tax rates, would have to share their riches with the rest of the state. The graph below shows the per capita gain or contribution of each county based on our proposed plan.
While this redistribution might initially appear unfair to residents of wealthier counties like Montgomery and Talbot, it’s important to recognize that the current system provides these areas with a significant economic advantage. Our proposal aims to level the playing field, which can feel like a loss to those accustomed to benefiting from the current system.
The core principle of our proposal is equity: every property owner in the state pays the same rate, and every county receives the same funding amount per capita. This approach eliminates the economic advantage of concentrating in wealthy communities and instead promotes a more balanced distribution of resources across the state.
Conclusion
Our current local property tax system inadvertently rewards economic segregation. Residents of wealthy communities currently enjoy the dual advantage of lower tax rates and better services, exacerbating existing inequalities across our state.
As Marylanders seek solutions to these disparities, we propose a simple, equitable approach: a uniform property tax rate for every property owner, coupled with equal per capita spending for every county. We urge legislators looking for serious, long-term solutions to consider this proposal. By implementing this statewide approach, we can create a more unified Maryland where every community has the resources to thrive, regardless of its property values.
Read more: While a statewide property tax would be an improvement over our current system, an even more optimal approach might be a statewide land value tax.
