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Jun 16, 2009 
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).
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