The Treasury Department's proposed overhaul of the federal tax system would put new burdens on state and local governments and many universities, charities and foundations, spokesmen for such institutions said yesterday.
The plan would also affect workers drawing unemployment benefits and workmen's compensation and those in companies with especially generous health-insurance plans.
While lowering tax rates generally, the proposal would eliminate the deduction of state and local sales, income and property taxes and would allow deductions for charitable contributions only after they exceed 2 percent of the taxpayers' adjusted gross income.
Spokesmen for these groups complained that the Treasury Department plan was diametrically opposed to President Reagan's overall themes of encouraging local governments and the private sector.
"It is contrary to the principles he ran on and it would undermine local economies and state-federal relationships," said Texas Gov. Mark White (D). "It would impair the ability of local governments to meet the demands of their citizens by impacting their ability through local taxation to handle their local problems."
State and local officials, who anticipated the proposal, contended that eliminating the state and local tax deductions would cost those who file itemized returns -- about 35 percent of all taxpayers -- an estimated $38.2 billion annually. This would make it harder for local governments to raise taxes in the future and could bring them under pressure to lower their taxes to offset the lost deductions, they said.
The plan would raise federal income taxes for those who itemize deductions by an average of $1,330 per household nationwide, according to a study obtained yesterday by Washington Post staff writer Howard Kurtz. Its impact would be felt particularly in the Northeast and Midwest, where local taxes rates are generally highest, and among high-income taxpayers who itemize.
New York taxpayers now deduct the most, an average of $2,399 per household, according to the study by the Advisory Commission on Intergovernmental Relations. The District of Columbia is second with an average deduction of $2,059, Maryland is fifth at $1,752 and Virginia is 14th at $1,351.
"The impact on our ability to maintain our revenue is very real," said Jerry Miller, director of the National Association of State Budget Officers. "There clearly will be pressure to lower existing taxes . . . . People take out their frustrations on total taxes at the state and local level."
San Antonio Mayor Henry Cisneros said the proposal to eliminate the tax-exempt status of revenue bonds that cities issue to finance housing, industrial development and other projects could cost the cities hundreds of millions of dollars in higher interest rates. He said it "would probably stop in its tracks much of the redevelopment activities occurring in cities today."
AFL-CIO President Lane Kirkland, angered by the proposals to end the partial or complete tax-free status for fringe items such as unemployment compensation, black lung benefits, certain veterans' disability benefits and employer-paid health-insurance premiums above a certain level, attacked the Treasury plan as "unfair to working people."
"The cosmetic reshuffling of taxes fails to deal with the fundamental needs of the country," he said.
He said the Treasury proposal ends up "putting the burden of so-called tax reform on the maimed, disabled and unemployed."
Charitable giving would also be heavily affected. Taxpayers would be able to deduct only the charitable contributions they make in excess of 2 percent of their adjusted gross income. In addition, by lowering the general tax rates, deductions of any sort would be made less valuable.
The Treasury Department proposal also would not allow the deduction of current full market value in most cases of a gift whose value has appreciated since the donor acquired it. It would allow deduction only of the purchase price plus an adjustment for inflation..
The proposal could reduce charitable contibutions to universities, foundations, hospitals, charities and museums, which total about $65 billion annually, by as much as 20 to 25 percent, according to Bob Smucker, vice president of Independent Sector, an umbrella organization for nearly 600 private charitable organizations and foundations and their contributors.
"For local United Ways who rely on working people for over 60 percent of their contributions, this could have a serious impact," said Jack Moskowitz, vice president of United Way of America. "The vast majority may not reach the 2-percent deductibility threshold."
Here are the big winners and losers under the Treasury proposal:
*Individual taxpayers generally would be better off than they are now. Individual taxes would decline an average of 8.5 percent because of lower tax rates but business taxes would increase because of the elimination of accelerated depreciation and the repeal of the investment tax credit.
*Lower-income families generally will get the biggest tax cuts. According to the Treasury figures, families with income of under $10,000 will get a 32.5-percent reduction in tax liability, families from $10,000 to $15,000 will get a 16.6-percent reduction, families from $20,000 to $50,000, about 9 percent, those from $50,000 to $100,000, a 7.4-percent reduction, and those from $100,000 to $200,000, 6.4 percent.
Moreover, because of increases in the personal exemption and standard deduction, families below the official government poverty line generally will pay no federal income taxes; the tax threshold now is so low that many families in poverty must pay income tax.
In 1986, the poverty line for a family of four will be about $11,600. Under present law, such a family would pay federal income taxes if its income reached $9,613 or more. Under the Treasury proposal, the family would not pay taxes until income reached $11,800 because of the increased standard deductions and personal exemption. (This assumes use of a special credit for the poor, called the earned-income tax credit, where applicable.)
*Although individuals would pay less tax overall than under current law, persons with certain benefits now exempt from federal income tax could be hit heavily by the Treasury proposal. Worker's compensation, paid to persons severely injured on the job, would be become taxable. Unemployment compensation, paid to workers who lose their jobs, would become fully taxable.
In addition, premiums paid by employers for worker health insurance in excess of $840 a year for an individual or $2,100 for a family would be counted as income for the worker and be taxed.
Among those most concerned about the Treasury proposals were charitable and educational institutions, including colleges, universities, medical schools, hospitals and museums.
Smucker said the average charitable contribution rate is only 1.97 percent of income; few small contributors reach the 2-percent threshold. He estimated that the proposal could cut the current $62 billion charitable contribution rate by one-fifth.
John Buckman, vice president and treasurer of Yale University, which has a $1.1 billion endowment, said that if contributions, now about $75 million a year, fell by 10 percent, it could force a corresponding rise in tuition, the other major source of the university's income.
Matt Ahmann, associate director for government relations of the National Conference of Catholic Charities, said "the Treasury proposal could be extremely hard on us."
Bruce Hopkins, an attorney specializing in charitable issues, said he didn't believe that the charity proposals would affect small organizations that rely on small contributions. However, he said they could have a major dampening effect on large national organizations that rely on mail campaigns, such as educational and environmental groups. He said they would also have a significant effect on museums, colleges, universities, schools, hospitals, churches and research groups that receive much of their contributions in stocks and bonds, real estate and other property.
"It would totally undercut the tax motivation of this kind of giving. It would be terrible for all of them," he said.