Middle-class District residents would be "big losers" under President Reagan's tax plan, and the city eventually would be forced to cut both taxes and services if it passes Congress as proposed, Mayor Marion Barry said yesterday.
Figures provided by the mayor's office yesterday showed that the net result of the plan on city residents would be to reduce federal taxes at the lowest and the highest income levels but to increase federal income taxes on middle-income persons and families who itemize deductions.
One of the major factors that would affect District residents is the president's proposed elimination of the federal deduction for taxes paid to state and local governments, a recommendation that has received harsh criticism from high-tax jurisdictions whose residents stand to lose the most by it.
Barry labeled the proposal "anti-middle-class" and "anti-urban," saying city residents who itemize would pay substantially higher federal taxes because of it. The mayor made his remarks at a hearing of the House District subcommittee on fiscal affairs, which provided the forum despite having no jurisdiction over federal tax law.
While rates would be reduced and the personal exemption increased, this would not be enough to offset the tax increases resulting from the elimination of the state and local tax deduction for those who itemize, almost half of all District taxpayers, Barry said.
A city analysis of the impact of the president's plan showed a tax reduction for families of four with one wage earner. With an income of $10,500, the tax for that type of family would be cut from $279 to zero by the proposal. At other income levels, the cut would range from 1.5 percent for a family with income of $27,000 to 9.8 percent at the $100,000 level.
But a family of four in the District with two wage earners would see a tax rise of 7.4 percent if family income is $27,000; of 6.1 percent if income is $50,000; and of 1 percent at the $75,000 level, the analysis said.
Single filers earning $27,000 would see their federal taxes rise 9.1 percent while those with income of $50,000 and $75,000 would have an estimated 3 percent tax increase under the president's proposal.
Two-earner couples without children would be the hardest hit, however, because they would be affected by both the elimination of the state and local deduction as well as a repeal of a deduction for two-earner families. With joint income of $27,000, a couple would see their federal taxes increase by 16.9 percent to $2,554, according to the city's analysis. At the $75,000 level, the increase would be 3.8 percent to $11,712.
A report released earlier this month by the Greater Washington Research Center found that virtually all taxpayers who do not itemize and most families with children or only one wage earner would have tax reductions under the president's plan. But it said that two-earner couples would pay more.
The proposals would make the District less attractive to middle-income persons compared with the surrounding jurisdictions, which have lower taxes, Barry said.
"We would have to reduce taxes to compete with Maryland and Virginia. And that means we would have to reduce our services," Barry said.