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6 States Hitting Residents With Big Tax Hikes
By Lisa Scherzer,
posted: 8 DAYS 20 HOURS AGO

State legislators faced with mammoth budget gaps and sharply lower revenue are looking to residents to bail them out.
Right now, at least 47 states are facing significant shortfalls in their 2009 and/or 2010 budgets, according to the Center on Budget and Policy Priorities, a think tank in Washington, D.C. And many of those states are looking to tax hikes to help fill the gaps.
“Pretty much everyone is doing poorly,” says Kim Rueben, senior research associate at the Tax Policy Center. “It’s just a question of who’s hurting more than others.”
The top honor goes to California, which is projecting that it will fall about $25 billion short come fiscal 2010. Taking second place is New York with a projected $17.6 billion deficit for fiscal 2010, according to the National Conference of State Legislatures, a bipartisan policy research organization in Washington, D.C.
How can these states miss the mark so badly? The recession has sapped the two major sources of state revenue: income taxes (thanks to rising unemployment, fewer people are getting paid) and sales taxes (quite simply, consumers are spending less.) “Those two things together really, really lead to a high loss of tax revenues, far in excess of loss of income,” says Michael Hicks, director of Ball State University’s Center for Business and Economic Research.

Even though raising taxes are typically a last resort, many states have no choice but to do so. And, in some, lawmakers are leaving no stone unturned when it comes to finding items or services to tax. New York, for instance, has raised taxes on tobacco, wine and limo services. Meanwhile, Massachusetts is proposing a tax on satellite television service and Georgia lawmakers are proposing a “pole tax” that would charge gentlemen’s club patrons $5 at the door.
To figure out which states are inflicting the biggest tax hikes on residents, SmartMoney pored over reports from tax research groups and contacted state budget offices. We looked at state budget deficits tracked by the National Conference of State Legislatures and current sales tax rate data from the Federation of Tax Administrators, a group that provides services to state tax authorities. Finally, we turned to the Tax Foundation -- a nonpartisan tax research group -- for figures on tax burden, the average percentage of each state's residents' income that is paid in state and local taxes (the figures we use are for 2008).

California: Diminishing This Huge Deficit May Just Be a Dream
State deficit estimate for fiscal 2010: $24.7 billion
Percent of general fund budget: 22.3%
State and local tax burden: 10.5%; Rank: 6
California is facing the biggest budget deficit in the nation, yet voters' willingness to chip in is starting to wane. Last month, they voted down five ballot measures that included sales and income tax increases. Who could blame them? At 11%, California has one of the worst unemployment rates in the country, the housing market has been decimated, and the state already raised taxes on sales by 1% to 8.25% and income by 0.25% (both of which expire in 2011). Gov. Arnold Schwarzenegger’s latest budget plan includes steep spending cuts across the government and cutbacks in social services.
In a testament to California’s grim predicament, one assemblyman’s proposal to legalize marijuana for personal use and allow counties to tax it is gaining public support. It’s one of the “wacky things you might be able to get away with now,” says Rueben.

New York: If It's Bad for You, It Will Be Taxed
State deficit estimate for fiscal 2010: $17.6 billion
Percent of general fund budget: 31.9%
State and local tax burden: 11.7%; Rank: 2
New York State Gov. David Paterson may have been unsuccessful in levying an 18% tax on soda and other sugary drinks in the name of combating obesity, but he’s had a hand in raising taxes on plenty of other "sinful" items, including tobacco (up to 46% from 37%) and wine (up 58% per gallon, or about two cents more per bottle).
For those living in New York, all those tax hikes can really add up. Second only to New Jersey, New Yorkers bear the second-highest tax burden thanks to a high income-tax rate of 7.85% (for those earning more than $200,000). And property and gas taxes are among the highest in the nation, according to the Tax Foundation. Nevertheless, shoppers can rejoice: The sales tax here remains relatively low at just 4%.

Florida: Driving and Smoking Will Cost You
State deficit estimate for fiscal 2010: $6 billion
Percent of general fund budget: 27%
State and local tax burden: 7.4%; Rank: 47
Florida passed its budget in May with a not-so-pleasant surprise for smokers: a $1-per-pack hike (the first such increase in 19 years). Motorists also got hit with higher fees to renew a license or register a vehicle. It could have been worse, though. Senate lawmakers had proposed eliminating the sales tax exemption on items like bottled water and tickets to sporting events, both of which didn't make the cut.
Still, residents here aren't feeling as much tax pain as some of their peers in other states. Overall, Florida's tax burden is the third-lowest in the nation and it's one of eight states that imposes no individual income tax, according to the Tax Foundation. But those perks may be outweighed by the rest of Florida's economic situation. Home values are among the nation's hardest hit and the state's $6 billion budget deficit could mean more tax hikes are on the horizon.

Massachusetts: Shoppers and Couch Potatoes, Prepare to Pay Up
State deficit estimate for fiscal 2010: $3 billion
Percent of general fund budget: 11.2%
State and local tax burden: 9.5%; Rank: 23
Just when Massachusetts was starting to shake its "Taxachusetts" nickname (it's ranked a middle-of-the-road 23rd in the Tax Foundation's tax burden assessment), the state is preparing to hike taxes on everything from alcohol to satellite TV.
The most hard-hitting for residents is a proposed increase in the sales tax to 6.25% from 5%. Both the House and Senate approved the measure and it's looking likely the increase will pass by the July 1 deadline, says Noah Berger, executive director of the Massachusetts Budget and Policy Center, an independent research group. Satellite TV subscribers may also get hit. The state is proposing a 5% sales tax on satellite services. Providers, of course, are fighting the tax.
Arizona: Proposed Sales-Tax Hike Could Hurt Already-Strapped Residents
State deficit estimate for fiscal 2010: $3 billion
Percent of general fund budget: 28.2%
State and local tax burden: 8.5%; Rank: 41
The recession has thumped Arizona harder than most other states, says Lee McPheters, research professor of economics at Arizona State University’s W.P. Carey business school. The housing slump is partially to blame: During the boom, construction accounted for at least a quarter of new jobs created. Since home prices have fallen 43% from their peak, the construction industry has lost tens of thousands of jobs, says McPheters. Arizona's unemployment rate in April was 7.7%, shy of the 8.9% national average.
If Gov. Janice Brewer gets her way, residents will pay for the state's problems by shelling out an extra 1% at the cash register. The proposed sales-tax hike, which would bring the rate to 6.6%, was omitted from the budget the legislature passed this month, but the governor may veto the budget until it’s put back in. (She could also place it on a November special election ballot.)

Nevada: What Happens in Vegas Is Going to Cost You More
State deficit estimate for fiscal 2010: $1.2 billion
Percent of general fund budget: 32%
State and local tax burden: 6.6%; Rank: 49
Nevada's freewheeling, low-tax past is coming back to haunt it like a bad hangover. The state levies no personal income tax and imposes some of the lowest taxes on businesses in the nation, says Bert Waisanen, a fiscal analyst at the National Conference of State Legislatures.
Nevada used to be able to afford being so generous with its residents. Revenue from tourism and gambling supported the state just fine. But now, as consumers would rather put their coins in a bank account than a slot machine, that revenue source is drying up. In fact, the state boasts the dubious honor of having the largest deficit in the country as a percentage of its budget – 32%. It's hiked the sales tax by 0.35% to 6.85% and taxes on hotel rooms are up 3%. It's even gambling with its business-friendly climate by raising taxes on businesses.

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