The legislation would also end a tax exemption for billions of dollars of so-called private activity bonds issued by state and local governments annually to finance affordable housing, non-profit hospitals and colleges, as well as airports and port facilities - a measure that would affect Democrat and Republican states alike.

Conservative groups have defended the tax bill, saying it would simplify the tax code, reduce overall burden on the economy and spread the costs and burdens more fairly.

“The principles outlined in this federal tax reform effort will provide pro-growth tax rate reductions, while adding fairness and simplicity to the tax code,” Jonathan Williams, chief economist at the American Legislative Exchange Council, an organization of conservative state legislators, said in an email.

Nick Samuels, a senior credit officer at Moody’s Investors Service, said the proposed bill would hit primarily high–income and high-tax states like California, New York and New Jersey, making it harder for them to raise revenue from income and property taxes.

Officials in the affected states say millions of residents, not just high-earners, would suffer because of lost tax breaks and less funding available for public services.

In New Jersey, 1.8 million households deduct a total of $17 billion in state income or sales taxes and 1.6 million households deduct a cumulative $14.9 billion in local property taxes from their federal taxes, according to the nonpartisan think-tank New Jersey Policy Perspective.

"This deal is still terrible for New Jersey's working families, with big tax breaks that overwhelmingly go to the wealthiest 1 percent, setting up deep cuts to programs and services that we all rely on,” said Jon Whiten, the group’s vice president.

Minnesota’s Democratic Governor Mark Dayton warned on Monday that the legislation would eliminate tax deductions totaling over $12.3 billion annually for 900,000 families in his state.

The states with the highest property tax collections per capita include New Jersey, New Hampshire, Connecticut and New York, according to the Tax Foundation.

For California, the Internal Revenue Service reported that approximately one in three residents took a state or local deduction in 2015, totaling roughly $113 billion, according to H.D. Palmer, a spokesman for the state’s finance department.