President Reagan's tax simplification plan would require veterans injured during their military service to begin paying federal income tax in fiscal 1987 on the disability benefits they receive.
The impact of the tax would be offset somewhat by an income tax credit of up to 15 percent for disabled veterans, according to the Office of Management and Budget.
But veterans groups said yesterday that the overall effect would be a dramatic reduction in benefits for most of the country's 2.2 million disabled veterans.
"This is ridiculous," said R. Jack Powell, executive director of the Paralyzed Veterans of America, who lost the use of his legs when he was serving in Vietnam.
"To tax compensation that is being paid to remunerate a veteran for a disability that he suffered fighting for his country is simply immoral," Powell said.
A spokesman for the Disabled American Veterans said it had written President Reagan, calling the proposed tax a "devastating" attack on the financial security of disabled veterans.
The Veterans Administration paid $9.9 billion in compensation in fiscal 1984 to veterans and their dependents.
The OMB said it could raise $919 million in fiscal 1987 by implementing the tax changes and a total of $4.5 billion over the next three fiscal years.
Meanwhile, the VA acknowledged yesterday that it is considering implementing a "means test" early next year to determine the eligibility of veterans under 65 for free VA care for medical conditions that are not related to their military service.
Currently, indigent veterans under 65 are required only to certify that they are unable to pay for VA medical care; the agency does not require them to provide any information about their finances.
The proposed regulation would require the VA to investigate veterans' financial claims and establish standards for judging financial need.
Congress gave the VA the authority to implement a means test in 1980, but the OMB and the VA have been unable to agree on its wording. John Scholzen, a VA spokesman, said the VA had drafted a means test, but is still discussing the income cutoff levels.
The administration is considering several other changes in VA benefits in an effort to curb costs that are expected to increase dramatically during the next two decades as more and more World War II and Korean War veterans reach the age of 65. Under a 1970 law, veterans are entitled to free VA medical care on a bed-available basis, once they reach that age.
A plan to limit VA medical care solely to veterans with service-connected medical problems also is under review, as is a plan to require that veterans who have private health insurance reimburse the VA for treatment of their non-service-related conditions.
Nearly all of the administration's proposals must be approved by Congress, except for the means test. VA administrator Harry N. Walters was told at a Cabinet meeting late last month to implement the test as quickly as possible, senior VA officials said. The OMB estimates the means test will save $400 million by fiscal 1988, but several high-ranking VA officials disputed that figure yesterday.
Only about 10 percent of the nation's 30 million veterans use the VA's 172-hospital network and most of them are poor.
A 1978 VA study found that 71 percent of veterans in VA hospitals had annual incomes of less than $15,000, while nearly one-fourth of them earned less than $5,000 annually.
Mack G. Fleming, a spokesman for the House Veterans' Affairs Committee, said yesterday that a draft of the means test that he had seen indicated that a veteran with a spouse would qualify for free care if his gross annual income was $15,000 or less.
Robert E. Lyngh, national director of rehabilitation for the 2.5 million-member American Legion, said the means test could end up costing the VA more to administer than it saves.
A veteran will have to be interviewed by as many as three hospital officials under the proposal, he said. Yet, the administration has said it will not allow the VA to hire any additional employes.
"This is going to be a bureaucratic nightmare," Lyngh said, that will "result in longer delays and poorer service for veterans."