"Montgomery's Tax-Cap Flap" {editorial, July 7} fails to reveal a basic understanding of how revenue from residential real estate taxes is generated and controlled in Maryland.

Homeowners are caught between the state, which controls assessments, and the county, which sets the real estate tax rate. The state says it is assessing at current real estate values, which we would receive if we sold our homes. However, a system such as this, which seeks to realize revenue based on pro-forma sales at current market values, penalizes long-term residents who may never wish to sell. The county, on the other hand, cannot be expected to effectively control the tax rate because it raises such a substantial amount of its revenue from real estate taxes.

Because real estate is taxed without regard to personal income, many residents on fixed incomes (but with valuable homes they would like to remain in) are becoming alarmed as they look down the road at the consequences of the county's tax-and-spend policies. Add the stridency and unreasonable demands of the county school board (which likes to negotiate contracts with teachers and then let someone else worry about the funding), and I think our concerns become more understandable.

The current system of generating revenue from real estate taxes is archaic in terms of accountability and provides an open-ended source of funding, particularly in the context of increasing real estate values and decreased revenue from other sources. The restrictive tax formula, proposed as an amendment to the charter and agreed to by the more responsible members of the council as a result of pressure from county homeowners and Fairness in Taxation, is a fair compromise and a reasoned approach toward achieving some control with respect to spending programs funded by real estate taxes in Montgomery County.

ROBERT F. BALTHIS Silver Spring

The Post's description of Montgomery County's proposed tax relief measure as "another . . . rigid tax-lid approach" is both inaccurate and biased.

The charter amendment, agreed upon by four council members and the citizens' group Fairness in Taxation, doesn't seek to limit the county's $1.6 billion operating budget -- only future increases in property taxes.

City & State's 1990 survey of the top 50 counties ranks Montgomery County third in property tax burden. And that's only part of the load. By paying 67 percent of the property tax, all of the local income tax (except for the portion paid by apartment dwellers) and the bulk of additional fees and charges, homeowners supply 80 percent of all the money the county spends.

Nor is FIT's amendment "rigid." The seven-member council previously created its own amendment requiring five votes to exceed the area rate of inflation for increases in the county's operating budget. Then it regularly voted 7-0 to exceed the limit. The new nine-member council will require six votes. FIT's amendment requires seven for property tax hikes beyond the rate of inflation.

We also note that The Post dutifully echoes County Executive Sid Kramer's canard that our amendment would damage education, the police, etc. (The notion that our amendment would hurt the police is ironic, since Mr. Kramer maintains a superfluous $1 million planning staff and an unneeded $2.2 million development office while denying radios to the police.)

Mr. Kramer's comments were made during an intemperate outburst against council members who worked with us. In fact, if our amendment were effective today, property tax collections would be greater than they've been from 1984 to 1990, when they've risen 9.5 percent per year. We would provide more than 10 percent. The present area rate of inflation is 6 percent, and exemptions for new construction and rezoned property will contribute an additional 4-plus percent per year.

Thus, the cry that the amendment would degrade county services is a sham. This is an election-year struggle pitting embattled homeowners and small-business owners (who have no state assessment cap and are vulnerable to ruinous property taxation) against the developers, who are funding Mr. Kramer's reelection campaign, who control the county chamber of commerce and who oppose efforts to make them pay a share of the road and school costs they generate.

ROBERT DENNY Chairman, Fairness in Taxation Bethesda