Governors Urge Panel to Retain Tax Deductions

New York Gov. Mario M. Cuomo, who has risen to the forefront of Democratic critics of President Reagan’s tax reform plan, led more than a dozen state, city and county officials Wednesday in urging Congress to retain the federal tax deductions for state and local taxes.

In testifying before the House Ways and Means Committee, Cuomo repeated an earlier charge that repealing the deductions--a key component of Reagan’s proposal--”would pulverize the middle class.”

Moreover, he said, it would undermine a federal system in which high-tax states such as California and New York incur a disproportionate burden of the poor, minority members and welfare clients within their jurisdictions.

Carlin, Lamm Testify

Cuomo was firmly seconded by Kansas Gov. John Carlin and Colorado Gov. Richard D. Lamm, both Democrats speaking on behalf of the National Governors Assn., and by a succession of county officials, mayors, congressmen and former New York Sen. Jacob K. Javits.

Defending the Administration’s position was Pennsylvania Gov. Dick Thornburgh, a Republican from a relatively low-tax state. He cited statistics from the nonpartisan Advisory Commission on Intergovernmental Relations reflecting the Administration view that the deduction of state and local taxes primarily benefits “high-bracket taxpayers in high-tax states.”

“That statement is not true,” retorted Cuomo. He said that 58 million taxpayers--about 40%, according to Internal Revenue Service records--claim the deductions, including more than half of all married couples and about 75% of four-person families with median income.

“Of those who use this deduction, more than half have income under $30,000, and 87% have income under $50,000,” Cuomo said. “Are these your rich New Yorkers? It’s the backbone of the nation, the middle class.”

But Thornburgh contended that, according to the commission, 75% of the $97.4 billion in state and local taxes deducted on federal tax returns in 1983 benefited only the wealthiest 18.6% of taxpayers. The benefits to states lost by eliminating the deduction would be more than compensated for by the lower tax rates under Reagan’s tax proposal, he asserted.

Wants Top Rate Raised

Cuomo made it clear also that he opposes lowering the top tax rate to 35% from 50%, the centerpiece of the Administration proposal. Indeed, to offset some of the estimated $33.3 billion in revenue that would be lost in the new plan’s first year if the state and local tax deductions were retained, Cuomo urged a higher top bracket of “between 35% and 50%.”

Carlin and Lamm, speaking for the governors’ group, said that they would consider a compromise, including a suggestion that the state and local tax deductions be allowed above a certain limit, such as 1% of a taxpayer’s adjusted gross income. They said that the deductions account for 11% of all tax breaks in the current tax code but repeal would produce 67% of the revenue changes in the Reagan proposal.

“If we are 11% of the problem, why are we 67% of the solution?” Lamm demanded.

Moreover, Cuomo declared, the Administration position “is illogical. There’s no rationale, no history, no fairness--just pragmatics. They need the money.”