Overhaul Proposal Draws Fire in High-Tax States

The section of President Reagan’s tax overhaul plan that wipes away the deduction for state and local taxes drew opposition today from governors and mayors in high-tax states who said it would amount to double taxation and pressure them at a time when federal aid is dwindling.

But the ranks of local leaders weren’t united, and some said losing the deduction against federal taxes could be worth the price for a simpler tax code.

Democratic governors in high-tax states were among the most vocal in condemning the proposal.

“It’s philosophically all at odds with states’ rights, which the President talks about but seldom follows,” said Wisconsin Gov. Anthony S. Earl.

‘It Punishes States’

“It subjects taxpayers to double taxation, a tax on taxes already paid to state and local governments,” said New York Gov. Mario M. Cuomo. “It punishes states that are trying to provide essential services in the face of massive federal spending cuts.”

“Under Reagan’s proposal, California taxpayers will pay more, not less, in federal income taxes,” said Los Angeles Mayor Tom Bradley.

In New York, 56 Republican members of the state Assembly wrote Reagan that they oppose the loss of deductibility “as a matter of principle and as a practical, economic concern.”

Reagan’s tax overhaul plan, proposed in the name of simplification during a national television address Tuesday night, would eliminate the provision that allows taxpayers to deduct the amount they pay in local taxes from their federally taxable income--a provision as old as the federal income tax itself.

Without change, the deduction is expected to be worth $33 billion next year to taxpayers.

‘A Handful of States’

State and local officials defended the deduction as the most common itemization taken by taxpayers, but Reagan called the write-off a subsidy for “the high-tax policies of a handful of states.”

While losing the deduction for local taxes, individuals would see their federal income tax rates lowered. But some questioned whether the lowered rate would be enough to offset the loss of the local tax deduction.

Groups such as the National Governors Assn., the League of Cities and the National Assn. of Counties oppose eliminating the deduction.

“The effect of this will be to increase pressure on local taxes,” said Matthew Coffey, executive director of the counties organization. “It will force local governments into a position where they cannot provide services being demanded by citizens.”

Tax overhaul plan, Page 5.