deductibility of state and local taxes: impact effects by state and income class

President Reagan's tax reform proposal includes the complete elimination of state and local tax deductions. Estimates are provided for the impact of this removal by state and by income class. Data are taken from a stratified random sample of 88,000 federal income tax returns for 1982. A tax simulation model permits computation of any desired measures of each state's tax structure under alternative tax regimes. Removing deductibility is studied under both the status quo of 1982 and the tax proposal. The trade of state and local deductibility for lower federal tax rates is shown to be advantageous for all income brackets in almost all states. The tax proposal may be controversial because lower tax rates may be viewed as temporary, and special interest groups disapprove of it.