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Local-Tax Deduction Could Be Kept

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Washington--Representative Dan Rostenkowski, the influential Democratic chairman of the House Ways and Means Committee, has agreed to a fragile compromise with New York State legislators that would retain the deductibility of state and local taxes in a tax-reform package, aides confirmed last week.

The retention of deductibility has been a top priority for educators, who claim that its elimination would lead to massive cuts in education spending, especially in states such as New York that have high state and local tax rates.

Aides stressed last week that the compromise could fall apart at any time, and said it was dependent on the "20 other deals" Representative Rostenkowski has made to get a tax plan to the House floor. Details of the compromise were known only to the legislators, who declined to discuss them with reporters.

"Rostenkowski has made it very clear that he is willing to accept state- and local-tax deductibility, but only if he can hold the other parts of the package together," said John Sherman, a Ways and Means Committee staff member. "All the deals hinge on a certain trust, a measure of courage in defending the deals."

"Whether or not it comes to pass depends on the support Rostenkowski gets along the line," he said.

President Reagan's tax-overhaul proposal, which he announced in May, would lower tax rates in part by eliminating all deductions of state and local taxes. Such deductions cost the federal treasury more than $30 billion a year.

The Ways and Means Committee chairman has been the Administration's key Congressional ally in the tax-reform struggle. A plan drafted by the Ways and Means staff would have kept some of the state and local deductions.

The Senate Finance Committee will not begin to draft its tax-reform bill until the House has completed action.--jrs & jh

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