By delivering billions in higher taxes, the new state budget will bring more hardship to an economy already staggered by the recession.

Within hours of the early morning vote in the Legislature, merchants across California were toting up potential losses from the 1-cent increase in the state sales tax. Meanwhile, the higher personal income taxes could prompt some wealthy Californians – who account for a huge share of tax payments – to flee the state.

But even some economists upset about the higher taxes said the Legislature averted financial disaster Thursday by approving the new budget. The state was in danger of going broke. Thousands of state workers faced layoffs, and billions of dollars in public-works projects could have been shelved.

"As ugly as it is, we'll take it," said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. "The alternative was really bad."

The budget leaves intact the twice-a-month unpaid furloughs for state workers, which are carving millions of dollars out of the Sacramento economy. The second furlough day is today. Furloughs would be reduced to once a month for those covered by the Service Employees International Union under a tentative contract agreement.

While the budget includes more borrowing, it cuts spending by $15.1 billion and raises taxes by $12.8 billion. The higher taxes are set to expire in two years but could be extended to 2014 if voters approve a spending cap. The overall impact will partially offset the tens of billions in spending and tax cuts headed California's way from the just-passed federal economic stimulus plan.

"I certainly understand that we've got to do something (about the state budget), but it's counterproductive to the economy to increase sales tax and reduce people's ability to buy," said Jean Hawkins, owner of Valley Oak Home Appliance Center in Elk Grove.

The new budget raises the effective statewide sales tax to 8.25 percent; many municipalities charge more.

"It doesn't help," said Bo Grebitus, owner of Grebitus & Sons jewelers in Sacramento. "It's going to slow businesses down, but I think the medicine just has to be taken."

The budget nearly doubles the vehicle license fee. Along with the higher sales tax, that could create further pain for troubled car dealers. New car sales in California fell 19 percent through the first 11 months of last year. In November alone, sales fell 42 percent.

However, the industry is getting a break from the U.S. government: Buyers of new cars in 2009 can deduct the sales tax from their federal income tax.

Business interests said there was good news in the budget, including up to $400 million in tax credits for small businesses that hire new workers. The movie industry got a $100 million tax break. There's also a tax credit for people who buy a new home after March 1.

Kyser said those goodies could ward off incursions by Colorado and other states that are launching campaigns to lure California companies.

"This somewhat blunts their efforts," Kyser said. "It shows (California) isn't completely hostile to business."

On the other hand, the temporary 0.25 percent hike in the personal income tax could create problems, even though it's smaller than originally contemplated and could shrink further if the state gets more money than expected from the U.S. stimulus package.

While practically everyone's income taxes will go up, the problem is the increased burden on California's wealthiest individuals, Kyser said. The state relies heavily on the wealthy for a huge share of its tax revenue. That can be risky because their incomes can fluctuate. Nearly one-third of the $40 billion deficit was caused by a dropoff in income tax payments, largely from the rich.

The higher rates could spur some affluent Californians to relocate to low-tax states. Tawny Stanton, who sells high-end real estate in Incline Village, Nev., called the new California budget "excellent for business."

She said more than half her clients are Californians "running away from a government that's broke and the high state taxes."

A proposed 12 cents-per-gallon increase in California's gas tax was scuttled at the last minute. That disappointed transportation expert Dan Sperling of UC Davis, who said higher gas taxes would dampen oil consumption and spur innovation of alternate technologies.

"We need to send the right price signals to consumers, to car companies, to oil companies," he said.

Severin Borenstein, director of the UC Energy Institute, added: "It certainly makes me wonder about California's ability to make serious headway on greenhouse gases."

Contact The Bee's Dale Kasler at (916) 321-1066. Read his blog on the economy, "Home Front," at www.sacbee.com/ blogs.