The main argument against eliminating the deduction is that it would constitute a massive tax increase on some states that would decimate their finances. Back in 1986, every political leader in the state of New York -- then, as now, a very high-tax state -- made this argument ad nauseam. New York Gov. Mario Cuomo was the No. 1 advocate of retaining the deduction.

 Although the argument was usually overwrought, people like Cuomo had a point. If the state and local deduction constitutes a subsidy, then its withdrawal will penalize those who make the most use of it. The whole point is to change governmental behavior by encouraging state tax cuts, contracting out and privatization of state services, and shrinkage of the public sector.

 The most principled argument in favor of the state and local tax deduction is federalism -- the federal government should not be imposing itself onto state and local tax decisions. That is why the state and local tax deduction was made part of the income tax when it first came into existence in 1913 and has remained part of the tax code ever since.
 
Conservative arguments against eliminating the state and local tax deduction include concerns that states will switch from personal income taxes to businesses taxes, which would remain deductible as a business expense in any case. This could diminish economic growth. Also, it is said that it is fundamentally unfair not to allow a deduction for taxes because they reduce taxpayers' income and are something over which they have no control.

 Ultimately, the case for retaining the state and local tax deduction -- or at least the combined lobbying pressure of the states and their Washington representatives -- proved compelling, and the deduction was retained in the Tax Reform Act of 1986. That same pressure will have to be overcome again if Bush plans to take another run at it.

 One thing that may tilt the playing field a little more against the deduction this time is that the Alternative Minimum Tax has already heavily eroded it. For those who must pay the AMT, no deduction for state and local taxes is presently allowed. This is a key reason why those in high tax states tend to pay more in federal taxes than they get back in federal spending.

 Still, the political fight will be furious. It cannot hope to succeed unless the payoff is big enough to create a countervailing political force. I think only a low flat-rate tax with no deductions for anything has that potential.