This is obviously a recommendation that would have a huge impact on states and their citizens. It would raise the effective cost of state income taxes, as well as sales taxes in the seven states that don't tax income. Sales taxes became deductible just last year.
"The proposal to eliminate the deduction for state and local taxes is nothing but a tax increase for the millions of middle-class taxpayers who itemize," Indianapolis Mayor Bart Peterson is quoted as saying in a National League of Cities news release.
The loss of income-tax deductibility would hit the states with the highest tax rates hardest, of course. It's surely not a coincidence that those states, including California and New York, form the bedrock of Democratic support.
We've had a lively debate going on here on the 13th Floor as to the question of whether states and localities operate pretty much at the mercy of the federal government these days, or whether states and localities still carry much clout on Capitol Hill.
The way this particular piece of President Bush's tax overhaul plays out in Congress next year will go a long way toward answering that question.
