First, this applies to all workers, not just federal, and it is an attempt by the IRS to eliminate income taxes on money that is spent to pay other income taxes. Second, it only applies if one itemizes and does not take the standard deduction. Third, the alternative minimum tax eliminates this subsidy since it does not recognize either the standard or itemized state tax deduction (or personal exemptions either). It replaces these with an AMT exemption. In 2012, (for married, filing jointly) this will be reduced to $45,000 (from $74,450 in 2011) and will dramatically increase the taxes owed by most middle class citizens.