The Six States Where Taxes Are Soaring

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1. Delaware
> Increase in personal income tax: none
> Expenditure per capita (2008): $6,800 (3rd highest)
> 2009 budget shortfall: 12.2% (18th highest)
> Home price decline from peak: 20.3% (16th largest)

In the past three years, the state of Delaware spent $6,800 per person in its annual budget, approximately two-and-a-half times as much as Nevada. The state’s government spent the 10th-most per person in the country on Medicare in 2009, and the 13th-most per person on pensions. In its fiscal year 2011 budget, the state was forced to address an 11.4% budget gap by cutting funds to education and the state workforce.

Despite these cuts, the recession has weighed heavily on the state’s budget. Delaware has experienced among the biggest declines in home values in the country over the past five years. The state raised tax revenues to help address the resulting budget gap. These hikes included at least 5% increases in corporate and cigarette taxes. The state also temporarily raised the cap on the corporate franchise tax from $165,000 to $180,000. As a result of these and other changes, state tax revenue increased by more than 9% between 2009 and 2011.

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2. California
> Increase in personal income tax: more than 5%
> Expenditure per capita (2008): $4,196 (25th lowest)
> 2009 budget shortfall: 36.7% (2nd highest)
> Home price decline from peak: 46.7% (3rd largest)

Since 2009, few states have had more serious budget challenges than California. Spending growth has far outpaced economic growth since 1991, and the gap continues to widen today. For years, the state has been one of the biggest-spenders in the country. TANF (Temporary Assistance for Needy Residents)-eligible residents receive $537 per month for 42.4 months — the second largest amount in the country and the seventh-longest period. The state also spends a great deal on pension beneficiaries.

The recession has made California’s structural deficits larger. Median home values fell by 46.7% from their peak in 2006, and median household income barely increased since then, much less than the average state. In 2010, the state had a $45.5 billion budget shortfall, or 52.8% of its general fund — the largest in nominal terms and the second-worst in the country as a percentage of general fund. Enormous budget gaps have forced the state to cut funding to nearly every major program. The state also has raised taxes substantially, including increases of 5% or more in sales tax, personal income tax, and corporate income tax, which together contribute to an overall increase in revenue from taxes of over 9%.

3. Illinois
> Increase in personal income tax: more than 5%
> Expenditure per capita (2008): $3,772 (16th lowest)
> 2009 budget shortfall: 15.1% (11th highest)
> Home price decline from peak: 21.7% (13th largest)

Illinois consistently has had among the largest budget shortfalls in the country since 2009. It also was hit extremely hard by the recession. Since its prerecession peak, home values have declined by more than 20%, which is among the worst declines in the country. GDP grew a relatively modest 8.2% between 2006 and 2010, while the average state’s GDP grew at least 10%.

In 2011, the state’s continued financial problems led to a $13.5 billion budget gap, representing 40.2% of the state’s general fund. It was the second-worst budget gap in the country. The state was forced to make spending cuts in all five major categories, including $311 million in cuts to school education in 2011. The state also increased the corporate tax rate from 4.8% to 7% and increased personal income tax from 3% to 5% as part of the fiscal year 2012 budget agreement. The state estimates these measures will raise approximately $7 billion.

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