Bid to Limit State Tax Deduction Resisted

The Reagan Administration’s renewed campaign to limit the federal tax deduction for state and local tax payments has run into stiff opposition, despite support from Senate Finance Committee Chairman Bob Packwood (R-Ore.) and Sen. Russell B. Long (D-La.), the committee’s top-ranking Democrat, for at least a scaling back of the deduction.

New York Gov. Mario M. Cuomo, a leader of the campaign to retain the entire deduction, disclosed Friday that he had won strong support from House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) and Sens. Alfonse M. D’Amato (R-N.Y.) and Paul Simon (D-Ill.).

Simon vowed to filibuster any attempt to limit deductions when the Senate takes up the House-passed tax revision bill, which preserves the deduction in its current form.

Dispute on Deduction

Packwood has said he is convinced his committee will produce a tax revision bill that will trim at least part of the deduction for state and local taxes. But Rostenkowski told Cuomo that if the Senate approves limiting the deduction, he would fight it in the Senate-House conference committee that would write a compromise version of the bill.

Rostenkowski was unavailable for comment, but an aide said: “It would have been impossible for him to get the tax revision bill through the House if it had eliminated the deduction, so I am sure he would oppose any bill that provides for eliminating the deduction.”

An aide in D’Amato’s office confirmed that he had met recently with Cuomo and assured the governor that he would oppose limiting the deduction. “He said any bill that contained that provision, even if it was slipped in at the last minute like they do sometimes--he would oppose it,” the aide said.

D’Amato is torn between his loyalty to Reagan and opposition in his home state to scaling back the deduction, which is particularly valuable to residents of his high-tax state. His Democratic colleague from New York, Sen. Daniel Patrick Moynihan, is the leading advocate of preserving the state and local tax deduction.

A Quiet Death

Cuomo, at a luncheon with reporters here, said he finds growing sentiment in the Senate to let tax overhaul, Reagan’s major domestic policy initiative in his second term, die a quiet death. A “larger body of opinion” in Congress is “saying there should be no tax revision, (that) we need to concentrate on the deficit,” he said.

Packwood, who is facing a reelection campaign this year, has said he favors eliminating the federal tax deduction for state sales tax payments--Oregon does not have a sales tax--but not the deduction for real estate taxes. He has left open the possibility of tinkering with the state income tax deduction.

Long has proposed limiting the state and local deduction to those payments in excess of about 3% of adjusted gross income.