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Earlier this week, ITEP released a new report, Don’t Give Up on Pease: States Can Decouple from Recent Federal Tax Cuts for Wealthy Itemizers

The report is a companion piece to ITEP’s July 2010 report on the impact of itemized deductions on state revenues.  In that report ITEP offered five options for reforming the state treatment of federal itemized deductions.  This week’s report provides updated data and analysis for one of the recommendations contained in that report: decoupling from the federal repeal of the “Pease” provision.

The Pease provision, named after its Congressional sponsor, reduces the cost and regressivity of certain itemized deductions by limiting their value by up to 80 percent for the very best-off taxpayers.

Unfortunately, Pease was repealed as part of the Bush tax cuts, and this repeal was extended through tax years 2011 and 2012 as part of the federal tax compromise package signed late last year.  Unless the 31 states (and DC) that allow federal itemized deductions decouple from this aspect of the compromise package, they will see a modest revenue decrease in both of those years, while their wealthiest residents will receive a bonus state tax cut on top of their already sizeable federal tax cuts.