Keep the State Tax Deduction As they continue to wrangle over the year-end fiscal deadline, both Democrats and Republicans are considering caps on federal income-tax deductions. That could be very bad news for residents of New York, New Jersey and other states and cities that rely heavily on their own income taxes. Such a cap would reduce the value of the deduction for state and local income taxes, which has been part of the federal tax code for a century (though the deduction has been diluted by the alternative minimum tax). That could substantially reduce middle-class disposable incomes in high-tax states, which, in turn, would put pressure on those states to cut taxes and the services they have long chosen to provide. A cap would also affect property and sales taxes, though those are spread around more evenly among all the states. The theory behind the deduction was that the amount paid to states in taxes is not really part of an individual's disposable income, because it is obligatory and, therefore, should not be taxed twice. Over time, the deduction has become the equivalent of a subsidy from the federal government to states that believe in a strong and active government. That may infuriate conservatives in low-tax states like Texas, who hate subsidizing states with different views of government's role, but it's actually a good thing for the country. The deduction is Washington's way of supporting states that support their most vulnerable citizens and neediest cities. The seven states that account for 90 percent of state and local tax deductions (including sales and property taxes) - New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts - generally do a better job of providing for the health and welfare of their citizens, and are more willing to pay for institutions that are good for society as a whole. Rapid-transit systems in states like New York and Massachusetts, subsidized with tax dollars, save energy and improve the environment. Few cities can afford to operate their own universities, but the City University of New York, also subsidized with tax dollars, is an enormously valuable institution with national benefits. Public hospital systems and generous Medicaid programs have improved and extended the lives of tens of millions of low-income people. Texas is proud not to have an income tax, but it also has by far the highest percentage of uninsured people in the country. It ranks last in prenatal care as well and in overall federal assessment of health quality. In their fiscal-cliff offer, Republicans have proposed raising $800 billion by capping deductions for the wealthy, though their proposal would inevitably affect the middle class in expensive states like New York and California. President Obama would prefer to raise tax rates, but he has also proposed deduction limits that would affect states that have chosen to impose higher income taxes. Governors, mayors and representatives of those states need to make their voices heard in support of that choice.