Proposals in the Reagan administration's tax-simplification plan to eliminate deductions for state and local tax payments could have a chilling effect on government services and spur white flight to suburban areas from the heavily-taxed District, local government officials said yesterday.
"We're looking down the throat of more cutbacks in government services," said Matthew B. Coffey, executive director of the National Association of Counties, one of half a dozen organizations that have attacked the plans for a massive overhaul of taxes.
Washington area officials predicted yesterday that the proposal to eliminate those deductions from federal income taxes could affect every facet of local government -- from home sales to leaf-collection fees.
Fairfax County Executive J. Hamilton Lambert said the proposed tax change would place increased pressures on local officials to reduce taxes. "It would be detrimental to government services," he said.
The nondeductability of state and local taxes would make it tougher for local governments to increase taxes, pass revenue bonds or increase fees for such services as garbage pick-up, said Fairfax Supervisor Thomas M. Davis III.
"I don't think people should have to pay taxes on taxes," said Davis, a Republican who adds that he supports other segments of the administration's package.
Virginia residents could be faced with a double penalty, according to some state officials. Virginia tax regulations automatically adjust state-allowed deductions to federal allowances. If, for example, the federal government eliminates current deductions for local property or sales taxes, Virginia would no longer allow them on state returns, said Robert Benton, a state tax official.
And while that could be painful to state taxpayers, it would ultimately mean more money for state coffers, Benton said.
Representatives of organizations such as the National League of Cities meeting in Indianapolis this week said that highly taxed urban centers, such as the District -- with the second highest personal income tax rate in the nation compared to the 50 states -- would be hardest hit by the proposals. They predict the higher taxes imposed on urban residents could recreate the trend of white flight to the suburbs that had slowly started to reverse in recent years.
But local officials are shying away from making dire predictions based on the complex proposals few of them know much about.
"Given the fact that it's a national tax reform," said D.C. Budget Director Betsy Reveal, "you may not be placed at any greater disadvantage than you are at already." She said she thought the plan would be an equal disadvantage for every jurisdiction.
Alexandria Mayor Charles E. Beatley Jr. said the new tax structure would create a "terrific dislocation" of residents in the suburbs as well as the city.
Others say they are skeptical that the administration's plans will be initiated: "Who knows? Who knows?" queried Ellen M. Bozman, chairman of the Arlington County Board. "I was overwhelmed with the magnitude of the changes proposed. I'm just waiting to see if there's any prospect of these things transpiring."
Prince George's County chief administrative officer John Wesley White added that there are enough alternative proposals floating around on Capitol Hill to make any predictions about their effect on localities "purely speculative." But area officals are quick to add that the proposals have sent shivers through county office buildings and city halls throughout the metropolitan area.
"Obviously the deduction is important to Montgomery residents, since most itemized their returns," said Daniel E. Lucas, a tax expert in the county's finance department. He noted that 43 percent of all Maryland taxpayers file itemized returns, a figure well above the national average of 35 percent.