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Budget talks falter over taxes

Top White House officials stormed out of the Capitol late Sunday afternoon, accusing Democrats of being unwilling to negotiate a fair tax compromise. The talks cannot be concluded without the White House. But lawmakers from both parties said they expected a resolution of the issues this week and that they saw Sunday's development as merely a temporary setback.

Sunday evening, Rep. Richard Gephardt, D-Mo., and Senate Majority Leader George Mitchell, D-Maine, resumed negotiations with Sen. Bob Dole, R-Kan., and Dole said, "The talks have not broken down."

White House Chief of Staff John Sununu said Democrats "could not agree among themselves."

Getting into his car to speed off the Capitol grounds, he said, "We made them an offer that included all the criteria they could have wanted. They obviously would prefer not to accept a package."

Democrats responded it was Republicans who were divided and that Sununu was posturing for the benefit of the wing of his party that will not support any new taxes.

"The Republicans are asking us to adopt proposals they want," said Gephardt. "But they are asking us to pass this proposal in the House with a preponderance of Democratic votes."

House Republican whip Newt Gingrich of Georgia repeated in an interview Sunday morning on the ABC News program This Week that most of his colleagues would vote against whatever tax plan the negotiators develop, even one President Bush supports.

The main division between the two sides is the Democrats' demand for a surtax on millionaires and the Republicans' insistence on a stiff limit on deductions millionaires could claim.

Sununu's statement followed a seemingly calm day in which White House officials and top

congressional leaders huddled in private offices, preparing and exchanging plans for raising about $145-billion in new taxes over five years. Until the rift, differences between the two sides appeared to be narrowing.

As they left the Capitol, White House budget director Richard Darman said he, Sununu and Treasury Secretary Nicholas Brady were going to the White House to see Bush.

A Democratic assistant said the administration officials walked out after the Democrats gave Republicans a choice of a top tax rate of 32 percent, up from the current 28 percent, or a top rate of 31 percent, with an additional 7.5 percent surtax on millionaires.

Republicans refused to go above 31 percent for the top rate, and instead of a surtax on millionaires, they proposed that the deductions the super-rich could take be strictly limited.

That was unacceptable to the heavily Democratic delegations from New York, California and other high-tax states, whose residents would be hurt if they were unable to deduct all of their state tax payments.

"It applies differently in different states," Gephardt said. "A surcharge applies evenly across all states."

Another Democratic staff member predicted an agreement would be reached this week. "This is just the storm before the calm," he said.

Congress wants to adjourn this week to prepare for the elections two weeks away. The government's authority to spend money expires again at midnight Wednesday, and if no budget deal is struck, Congress must pass, and President Bush must approve, another stopgap spending measure to keep the government in business.

Sen. Bob Packwood, R-Ore., said he had spoken on the telephone with Bush on Sunday afternoon and that Bush had said, "I've given up so much already, I don't want to give up any more."

"We may have reached an impasse," Packwood said.

Darman, Sununu and Brady met throughout the day with Dole and Packwood. Periodically, the two Republican senators would leave the administration officials and walk down the hall to trade plans with Democratic leaders.

Mitchell and Gephardt were joined in the negotiations by Rep. Dan Rostenkowski, D-Ill., chairman of the House Ways and Means Committee, and Sen. Lloyd Bentsen, D-Texas, chairman of the Senate Finance Committee.

In the afternoon, the two sides appeared to tentatively agree on a 31 percent top tax rate.

They also appeared to agree generally on a limit on deductions that could be claimed by upper-income taxpayers, a higher gasoline tax, cuts in Medicare payments and an increase in the amount of wages subject to Medicare payroll taxes, staff assistants said.

The disagreements were over who would be affected by the deduction limit, how far the gasoline tax should be raised, how deep Medicare benefits should be cut and what amount should be subject to the Medicare payroll taxes.

Both sides are determined to raise about $145-billion in new taxes over five years as part of an overall plan that would reduce the federal deficit, now about $300-billion, by $40-billion this year and $500-billion through 1995.

Each time an offer was made, staff members scurried across the street to run the plan through the computer of the Joint Congressional Committee on Taxation and determine how the plan would affect taxpayers at different income levels.

The Democrats are determined that the wealthy bear most of the new tax bite. With that in mind, the plans put forth by the Democrats would place a surtax on incomes above $1-million.

Party leaders want to seize the opportunity to paint Democrats as the protectors of the poor and middle class and Republicans as the patrons of the wealthy.

"We feel very strongly there should be a surcharge," House Speaker Thomas Foley, D-Wash., said at a news conference.

Republicans resisted the surtax and the idea that they favored the rich.

"This is one of the all-time false issues, the rich-poor thing," Darman said. "This compromise in the end will tax the rich."