New York and New Jersey are locked in an epic battle.  The fight: which state can raise the tax burden the highest until virtually every resident and business just leaves.

In mid-march, we reported on New Jersey's attempt to turn the Garden State into a depopulated ghost town by raising $1 billion in taxes on individuals, businesses, homeowners, and consumers.  As a result of having raised more taxes than any other state since 2002 (a combined $22 billion), the Garden State has seen hundreds of thousands of residents flee for low tax states like Pennsylvania and Florida.

Not to be outdone, this week New York countered with $7.8 billion in tax hikes as part of the state's FY09-10 budget.  The $131.8 billion budget agreement, reached in completely closed door sessions by Gov. David Paterson (D), Speaker Sheldon Silver (D), and Senate Majority Leader Malcolm Smith (D), has been passed by the House and will likely pass the Senate today.

The bill will raise the personal income tax to 8.97%, matching New Jersey.  It also gives New York City residents the highest income tax rate in the nation at 12.62%.  Additionally, the bill contains over $3.8 billion in other taxes and fees, including on rental cars, cigars, beer, wine, and internet sales.

In a resounding victory for fiscal imprudence, the budget will give the Empire State the worst-ranked business tax climate in the nation - stealing the number one spot away from rival New Jersey.  Not surprisingly, the Empire Center and Beacon Hill Institute have found that the budget will cost the state over 15,500 private sector jobs.