How would the elimination of state and local tax deductibility affect taxpayers and the states in which they live? While taxpayers in all 50 states claim this deduction, the benefits are concentrated in relatively few states. These are states with a disproportionate share of high-income households and relatively high state/local taxes and also states with more people subject to the AMT. Disallowing the deduction for state/local taxes would lead to Federal tax savings of $669 billion for the period 2006-2015. We estimate that the average tax increase for households would be 3.5 percent in 2005, with the largest tax increases occurring for those earning over $100,000. By 2010 the actual tax increases will be lower for many households due to the effective elimination of this deduction by the AMT. Thus for many households, elimination of the deductibility of state and local taxes is already in place as part of the current tax system.
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