As expected, President Obama’s latest deficit-reduction package calls for a return to pre-2001 income tax rates and new limits on itemized deductions for filers with incomes starting as low as $200,000 — essentially the same thing the president proposed two years ago.

For high-income earners, Obama’s proposed combination of federal rate hikes and deduction limits would raise New York’s net (i.e., post-deduction) state and local income tax rates their highest levels ever — higher, even, than after Nelson Rockefeller jacked up New York’s top rate to 15 percent in the early 1970s, as Josh Barro and I explained in this 2010 City Journal article. By curtailing the interest deduction on municipal debt, the Obama plan would also raise the cost of borrowing for state and local governments — an especially important for heavily indebted states like New York.

Then there’s the not-so-little matter of the elasticity of income in response to a big federal tax hike, and the resulting impact on the state’s revenue:

Economists and tax-policy analysts have long recognized a link between taxpayer behavior and changes in marginal rates, especially in higher income brackets, where taxpayers have more control over the timing and nature of their incomes. When rates rise sharply, taxpayers respond by working and earning less, by shifting their “domicile” (or main residence for tax purposes) to lower-tax jurisdictions, and by using legal strategies to shift or shelter income in tax-exempt investments. Conversely, when marginal rates fall, upper-bracket taxpayers have less incentive to hide or shift income.

Based on a U.S. Treasury Department analysis of taxpayers’ responses to the Bush tax cuts, a 200[8] report by the Manhattan Institute’s Empire Center for New York State Policy estimated that a return to the pre-2001 top federal tax rates would lead to annual revenue losses of $400 million for New York State and $72 million for Gotham. An econometric model developed for the Manhattan Institute by Boston’s Beacon Hill Institute predicted a slightly larger loss for the state but a smaller one for the city.

We are still awaiting the details of Obama’s reported plans to propose an added levy on incomes above $1 million, but the forthcoming “Buffett Rule” seems likely to include some further limitation on deductions for filers with incomes of seven-figures or more — which, needless to say, are more numerous in New York than in most other states.

In addition to all this, there’s the plan to finance federal health care reform law with other tax increases, including an added Medicare wage tax of 0.9 percent on earnings above $200,000 for individuals and $250,000 for married couples, and to slap another 3.8 percent on interest and dividends collected by higher-income couples.  These changes also will have a disproportionate impact on states like New York, adding to the likely revenue losses projected in Empire Center’s 2008 report.