WASHINGTON – President Bush’s advisory panel on tax reform yesterday drew criticism from both sides of the national taxation debate by recommending that federal deductions for state and local taxes be abolished; that the number of tax brackets be reduced to four from six and their rate lowered; that the alternative minimum tax be eliminated, and that the taxes paid on income derived from investments be reduced.

The suggestion that drew the most attention from New Yorkers and residents of other states with high income tax rates was the proposed abolition of the federal tax deduction for state and local income taxes.

The bipartisan, nine-member panel, headed by a former senator of Florida, Connie Mack, and former senator of Louisiana, John Breaux, met yesterday morning to outline two proposals for restructuring the federal tax code in advance of issuing its official report, which will be presented to Treasury Secretary Snow on November 1.

Mr. Snow, in turn, will make recommendations to the president based on the panel’s findings, which call for reducing a complicated labyrinth of exemptions, deductions, and incentives to a handful of benefits that could, according to panel members, be applied for with a one-page income-tax return.

The panel’s staff said the first proposal outlined yesterday would simplify the income tax code by reducing the current six-bracket structure to four brackets, with rates of 15%, 25%, 30%, and 33%. Seventy-five percent of Americans would pay the 15% rate. The highest rate paid under the current six-bracket system is 35%.

The proposal, the employees said, would also eliminate the alternative minimum tax, a levy first imposed in 1969 to prevent a few hundred families considered wealthy at the time from avoiding income taxes. The terms of the AMT, which requires those subject to it to calculate their taxes twice and to pay the higher rate, have not been adjusted for inflation since 1969, according to panel staff. As a result, incomes now considered less than wealthy are subject to the AMT, and the panel projects that 20 million Americans will be saddled with the tax next year.

Other stipulations of the first proposal would replace the four distinct family-related tax benefits – all of which have different eligibility requirements and phase out at different points – with one new “family credit” for which all Americans would automatically be eligible, panel staff said.

Various tax-preferred savings accounts, too, would be streamlined. The “alphabet soup” of retirement and other savings accounts such as 401(k)s would be boiled down to a “Save at Work” account, a “Save for Retirement” account, and a “Save for Family” account, according to the panel. The new system, panel staff said, would allow for more flexibility and autonomy over how the savings are spent, permitting families to save tax-free for expenses ranging from medical costs to a new home to a child’s braces.

Other proposals include limiting the amount of a home mortgage deduction; allowing Americans to take deductions for the cost of providing their own health insurance if employers do not; capping deductions for employer-provided health insurance at $11,500 for families and $5,000 for individuals – the level of health benefits enjoyed by members of Congress, and eliminating about three quarters of the capital gains taxes paid by individuals.

The deduction for state and local income taxes, according to opponents, provides a perverse incentive for high tax states to preserve inflated income tax rates, subsidized at the federal level by those states able to provide services with lower taxes. Observers yesterday pointed out that the elimination of the state and local tax deduction would be required to offset the revenue lost by the abolition of the AMT.

Senator Schumer excoriated the panel and its suggestions yesterday, saying: “It is hard to conceive of something that could hurt New York more.” Mr. Schumer sits on the Senate’s Finance Committee, which has oversight of taxes and would have to approve any proposed reform before it could become law.

In a statement released yesterday afternoon, Mr. Schumer called the proposed elimination of the deduction “a dagger to the heart of the people of New York,” pledging: “We will do everything in our power to defeat this pernicious proposal,” which, the senator said, would result in an additional $12 billion a year paid by New York taxpayers.

Mr. Schumer’s colleague, Senator Clinton, joined in the criticism, saying in a statement: “It is very troubling to hear that the president’s tax reform panel has recommended the elimination of a tax benefit for over 3.2 million New York families who are disproportionately burdened by high property and state income taxes.” Neither she nor Mr. Schumer offered alternative plans to address why New York families are “disproportionately burdened by high property and state income taxes.”

Joining New York’s two Democratic senators was Governor Pataki, who said in an e-mailed statement: “This proposal would devastate hardworking New Yorkers who already send billions more to Washington every year than they get back. I oppose it and will fight against it.”

Less combative, but still skeptical, were the leaders of the Senate Finance Committee. The chairman of the committee, Senator Grassley, a Republican of Iowa, said in an e-mailed statement that some of the panel’s suggestions were “hot issues in the 1990s, and they were dropped after being pushed by predecessors of mine very strongly and just didn’t get anywhere. The commission ought to consider that history.”

The committee’s ranking member, Senator Baucus, a Democrat of Montana, said in a statement that “the recommendations lack important details,” adding: “The devil is in the details, and I am concerned these recommendations will be coming with a lot of fine print to read.”

Staff for the Finance Committee said yesterday that the committee would hold hearings into the panel’s proposals as soon as it submits its final report to the Treasury Department, possibly as soon as the first or second week of November.

As for Mr. Bush’s timetable for tax reform, a White House spokesman, Scott McClellan, said during yesterday’s daily press briefing that the issue will likely be a priority for the president next year.

In the meantime, Mr. Bush’s support among fiscal conservatives appeared slightly diminished yesterday, as free market advocates expressed disappointment with the panel’s reforms.

The president of the Club for Growth, Patrick Toomey, a former Republican congressman of Pennsylvania, said yesterday that the president was “missing a big opportunity,” labeling the proposed reforms “a lot of tinkering around the edges of a disastrous tax code” and comparing tax reform to Mr. Bush’s ill-fated attempts at Social Security reform.

More effective, Mr. Toomey said, would be implementing a consumption-based tax code or a flat tax that would be less redistributive and would stimulate economic growth.

The panel’s second, alternative proposal, according to press accounts, recommended a “progressive consumption tax” accompanied by several proposals to encourage investment by businesses.

A budget and taxation analyst at the Manhattan Institute’s Empire Center for New York State policy, E. J. McMahon, said the proposal was a “prescription for nothingness,” pointing out that the benefits to New York of abolishing the AMT were reduced by the elimination of the state and local tax deduction.

Mr. McMahon also pointed out that the deduction, since it would hurt heavily Democratic states with large tax burdens, such as California and New York, would likely doom the panel’s proposals politically.

The House Ways and Means committee, which has oversight in the House over taxation and which would have to approve the proposals before they became law, has as its chairman William Thomas, Republican of California, and as its ranking member Charles Rangel, Democrat of New York, neither of whom could be reached for comment last night.