5 States Hitting Residents With Big Tax Hikes

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 – and it grew by a couple billion dollars on Wednesday when Democrat and Republican state lawmakers failed to reach a consensus on budget cuts. Without a fix, state officials are set to issue IOUs (officially called registered warrants) to private businesses, local governments and other taxpayers owed money by the state. 

Voters' willingness to help ease the cash shortage has waned. In May, they voted down five ballot measures that included sales and income tax increases. Who could blame them? California has one of the worst unemployment rates in the country at 11.5%, its 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.