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This is how the GOP may pay for its tax plan, and it could hit Democrats hardest

President Donald Trump pledged to eliminate "tax breaks and loopholes" that favor the highest earners.

One of the tax breaks in the administration's crosshairs would also target Democrats, according to a CNBC analysis.

In a speech in Indianapolis Wednesday, Trump offered broad outlines of the administration's long-awaited tax reform package. But it was short on details on which of the dozens of lucrative tax breaks in the current tax code may be eliminated.

But at a Tuesday briefing ahead of Wednesday's formal announcement, a senior White House official signaled that a popular deduction for taxes paid to state and local governments will be eliminated. Doing so would hit Democratic voters hardest, according to IRS data.

The provision at risk is a long-standing rule that lets you deduct from your reported income the money you pay in state and local taxes on income, real estate or sales of big-ticket items.

Senate Minority Leader Charles Schumer (L) ,D-N.Y., looks on as House Minority Leader Nancy Pelosi, D-Calif., speaks to reporters during a news conference at the U.S. Capitol in Washington.
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Senate Minority Leader Charles Schumer (L) ,D-N.Y., looks on as House Minority Leader Nancy Pelosi, D-Calif., speaks to reporters during a news conference at the U.S. Capitol in Washington.

The popular provision may be on the tax-reform chopping block for a simple reason: Eliminating it would generate tens of billions of dollars in revenue needed to offset the money lost from lowering tax rates on individuals and corporations. For the tax years 2016 through 2020, letting taxpayers off the hook for taxes paid to state and local governments will cost the Treasury nearly $370 billion, according to a report from the congressional Joint Committee on Taxation.

Proponents of the provision have long argued that, without the provision, taxpayers would be hit twice for each dollar of income, once by their state and again by the U.S. Treasury. Opponents argue that the deduction benefits the richest taxpayers at the expense of those with lower incomes, or who don't own a home or make large purchases that carry a big sales tax.

One thing is clear: Eliminating the deduction would hurt taxpayers who voted for Hillary Clinton a lot harder than it would those who voted for Donald Trump, according to a CNBC analysis of voter and tax data.

The disparity is striking at the state level, where the bulk of the benefit for deducting state and local taxes goes to taxpayers in states with higher-than-average taxes and median incomes that are bigger than the national median.

Taxpayers in California and New York, among the bluest states in the country, would be the hardest hit. Of the total deductions claimed nationwide, half of the benefit in 2014 went to just seven states — California, New York, New Jersey, Illinois, Connecticut, Massachusetts and Maryland, according to a report from the Tax Foundation.

The impact is even starker at the county level, where the combined tax burden can vary widely within a given state. Of the 25 counties where taxpayers, on average, took the biggest deductions for payment of state and local taxes, only two of them voted for Trump in 2016.

It remains to be seen whether GOP tax reformers can succeed in striking from the tax code one of the oldest deductions. The move would likely face strong opposition from state lawmakers in all 50 state capitols, who would be under even greater pressure to hold the line on taxes at a time when state budgets are under strain.

Here's how the elimination of the deduction would affect your county:

WATCH: Strategist says no tax plan passed this year

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