WASHINGTON -- A list of options for reducing the deficit compiled by the Office of Management and Budget proposes no new limits on tax-exempt bonds, but does suggest drastic cutbacks in the amount of income tax deductions permitted for middle and upper income taxpayers.

Analysts said such a change could boost demand for tax-exempt bonds, because a taxpayer with no ability to claim itemized deductions would move more quickly into a higher tax bracket. The taxpayer would also have more incentive to reduce his taxable income and get into a lower bracket.

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