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Bush may accept tax hike for wealthy

In a break that could lead to a compromise in the budget negotiations, Treasury Secretary Nicholas Brady has told lawmakers that President Bush could accept an increase in the tax rate for the wealthy to 31 percent from 28 percent now, staff assistants from both parties said Saturday. No specific word seeped out of the private tax negotiations that went on all day. But a variety of political advisers to senior lawmakers and tax experts who are familiar with the issues and the views of the participants said that Bush's concession on a rate increase brought the shape of a possible compromise into sharper focus.

They said other aspects of the compromise would probably include a surtax on the very rich, a limit on the itemized deductions the wealthy could claim and a modest rise in the federal gasoline tax.

Bush had previously said he would reject any budget deal that provided for a top tax rate of 33 percent, a level that would be imposed under a budget bill passed by the House last Tuesday.

But he had been less explicit as to whether a smaller increase would be acceptable.

With Bush's top policy advisers looking over their shoulders, Sens. George Mitchell, Bob Dole and Lloyd Bentsen, Rep. Dan Rostenkowski and a few other lawmakers huddled Saturday trying to work out the final tax deals that are the most controversial aspects of a budget plan. The plan is supposed to reduce the federal deficit by $40-billion in the 1991 fiscal year and $500-billion over five years.

"It's suddenly starting to dawn on people that they're not too far apart, that this may not be so hard after all," said a staff assistant to one of the main negotiators.

The main difficulty the negotiators face is to reconcile the political needs of the president, who insists that tax rates not be raised significantly, with the demands of Democrats that the wealthy bear the brunt of deficit reduction.

Last Tuesday, the House, voting along party lines, approved a Democratic bill that would raise taxes by $149-billion over the next five years, 68 percent of it from taxpayers with annual incomes above $100,000.

The central part of this bill would increase the tax rate on the richest taxpayers to 33 percent from 28 percent.

On Friday, the Senate passed a bipartisan bill, supported by Bush, that would raise $146-billion, 42 percent of it from households with incomes above $100,000.

Tax rates would not be increased under this measure, but the federal gasoline tax would be raised to 9{ cents a gallon.

The conference committee working on the differences in the two versions hopes to finish by tonight. The full House and Senate must pass the compromise and Bush must sign it for it to become law.

Under a measure enacted Friday, the government's authority to spend money will lapse at midnight Wednesday.

Brady said Bush would agree to a top tax rate of 31 percent, so long as the "bubble" was eliminated from the tax code.

The bubble is jargon for the anomaly in the current tax law that forces families with taxable income from about $80,000 to $200,000 to pay higher taxes on part of their income than those making above $200,000.