Tax hikes on the way for Connecticut residents

NEW YORK (CNNMoney) -- Connecticut residents: Get ready to pay more taxes!

Governor Dannel Malloy on Wednesday signed a $40.1 billion budget that raises taxes on sales, income, cigarettes and corporations. The budget should bring in $2.5 billion in additional levies over the next two years.

The biennial plan, which also cuts spending by $2.2 billion, depends on state employees agreeing to $2 billion in concessions between now and 2013. The governor said he could send out more than 4,000 layoff notices to the state's roughly 50,000 workers soon if a deal isn't reached.

Unlike many of his peers, Malloy chose to increase taxes, rather than dramatically cut spending to close his state's $3.3 billion budget shortfall. Only a handful of governors are proposing tax hikes this year.

Under the budget, the state sales tax will rise to 6.35% from 6%, while cigarette taxes climb to $3.40, from $3 in the new fiscal year, which starts July 1. Larger corporations will see a 20% income surcharge, replacing a current 10% surcharge.

Residents earning more than $100,000 will pay higher income taxes due to a hike in marginal rates, while those buying pricey cars, boats, jewelry and clothing will pay a 7% luxury goods tax. The state will also extract a tax on estates and gifts greater than $2 million, as opposed to the current $3.5 million threshold.

Like to hear live music in a bar? Be prepared to pay a 3% cabaret tax. Get caught speeding? You'll fork over a $15 fee, up from $10, on top of the fine.

Residents will pay sales taxes on more services, such as pet grooming, spa treatments and yoga. Clothing and footwear under $50 will be subject to tax too.

The news isn't all bad, however. A 3-cent hike in the gas tax was dropped. And the budget increases the amount of business tax credits available for job creation to $20 million, up from $11 million. It also creates a state earned income tax credit for low-wage workers.