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Budget negotiators strike a compromise

After five months of negotiations and partisan bickering, top congressional leaders said Wednesday they struck a compromise on taxes that they thought would have the support of the White House and a majority of the members of the Senate and House. The final details were being nailed down Wednesday night, and the precise legislation remained to be written. But the basics were presented to rank-and-file lawmakers and are not likely to change.

The measure would raise taxes by more than $140-billion over the next five years, the core of an overall plan to reduce the federal deficit by $40-billion this year and $500-billion over five years.

A final sticking point, the insistence of Democrats in the House that annual incomes above $1-million be subject to a surtax, was dropped Wednesday.

The compromise will be voted on by the House of Representatives today or Friday, and by the Senate soon afterward.

White House officials said Bush was prepared to sign off on the budget agreement provided final details, including provisions on Medicare, could be worked out.

Bush was also prepared to sign another stopgap measure continuing government operations as talks on the final details continued Wednesday night. The government's spending authority was to expire at midnight.

The White House said "sufficient progress has been made" to allow Bush to sign the measure to keep the government from running out of money for three days, the fifth such resolution this month.

White House spokesman Marlin Fitzwater said Bush would not actually sign the continuing resolution until this morning, but all federal workers should report to work as scheduled today.

With the latest developments, the budget fight that has dominated Washington politics for months, paralyzed Congress and often embarrassed the president seemed to be nearing an end.

In many respects the plan is similar to the one that Bush and the congressional leaders announced in the White House Rose Garden on Sept. 30 only to see it voted down in the House later that week.

But the new plan would be more favorable to the middle class, particularly Medicare beneficiaries, and would require sharply higher taxes from the wealthy.

Some lawmakers of both parties said they would vote against it, but preliminary indications were that a majority would support the plan, many reluctantly.

Some of the main elements of the compromise were a 31 percent top tax rate, up from 28 percent now, on taxable income above about $80,000; a 5-cent increase in the gasoline tax, to 14 cents a gallon, and a phase-out of personal exemptions for affluent couples that would have the effect of raising their tax rate by one-half of a percentage point for each exemption within a specified range.

Drivers, smokers, airline travelers and the wealthy would pay more in taxes; new taxes would be imposed on luxury items like expensive cars and boats and higher taxes on alcoholic beverages and tobacco. Medicare recipients would see benefits reduced.

The tax provisions would go into effect Jan. 1.

The wealthiest 1 percent of taxpayers, those with incomes of more than $200,000 a year, would have their taxes increased by an average of 6.7 percent. Those with incomes below $20,000 would get a modest tax cut. Those with incomes in between would have tax increases in the neighborhood of 2 percent.

The plan was worked out overnight by the top congressional leaders and President Bush's negotiators: Treasury Secretary Nicholas Brady, White House chief of staff John Sununu and budget director Richard Darman.

House speaker Thomas Foley of Washington and Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, presented the compromise to rank-and-file House Democrats at a caucus meeting Wednesday afternoon.

"The caucus generally supported it," said Rep. William H. Gray of Pennsylvania, the Democratic whip.

Many Democrats expressed disappointment that the measure did not contain a surtax on people with incomes above $1-million as did the bill approved by the House last week.

But Democrats at the caucus meeting said Foley argued that the surtax was strongly opposed by the president and Republican senators and that insisting on it would mean the death of the entire budget legislation.

Foley was said to have told his rank and file at the closed session that their party had scored a significant goal over the past several weeks by painting themselves as the defenders of the middle class and Republicans as the party of the rich.

Now, Foley is reported to have said, the public is tired of squabbling and it is time for the Democratic lawmakers to prove they can govern.

All but a handful of the Republicans in the House are committed to voting against the measure, so it will take strong support from the Democratic majority to obtain passage.

"It's lousy tax policy," said Rep. Charles B. Rangel of New York, one of the Democrats who said he would vote against the package. But Rangel agreed it would surely be passed.

Most senators said Wednesday night they were not familiar with details and were not willing to make a commitment one way or another.

Sen. Lloyd Bentsen, D-Texas, who heads the Finance Committee, insisted he was not prepared to take a stand, and he seemed to be irritated because a key element of the compromise _ and the one that locked it up _ was negotiated without him.

But the top party leaders in the Senate _ George Mitchell, D-Maine, and Bob Dole, R-Kan. _ are four-square behind the compromise, and the Senate almost never defeats measures that the bipartisan leadership pushes strongly.

The point in the plan that locked up the compromise was the one that would phase out personal exemptions for well-to-do taxpayers.

This provision was arrived at after Republicans rejected the idea of a surtax on people with million-dollar incomes, and Democrats opposed a stiff limit on those taxpayers' itemized deductions.

Some lawmakers complained that this aspect of the plan was "anti-family," since a couple with, say, six children could have their taxes raised by 4 percentage points on income of between $150,000 and $275,000.

But the leadership's position was expressed by Rep. Leon E. Panetta, D-Calif., who heads the House Budget Committee. "People with large families making $200,000, $250,000 can make their contribution to deficit reduction," he said.

Countless details were being worked out Wednesday night as the negotiators continued to meet. For instance, there was disagreement between senators and representatives over tax breaks for oil and gas producers and over taxation of insurance companies. But major legislation does not usually founder on these kinds of issues, difficult as they are to resolve.

Foley declared that the idea of a special tax on millionaires was not dead and would be one of the first orders of business when the 92nd Congress convenes in January.

"I think the surcharge on the million-dollar incomes and above," he said, "was the simplest, most understandable, most straightforward, most effective way" to make the wealthy share the "burdens" of deficit reduction.

_ Information from AP was used in this report.

Budget agreement highlights

MEDICARE: Recipients would pay a $100 annual deductible, up from $75, for optional doctor's bill and outpatient coverage. The monthly premium, now $28.60, would rise by $2.40 next year.

INCOME TAX: The top rate on the wealthiest taxpayers would rise from 28 percent to 31 percent. For those in the "bubble," earning between $78,400 and $208,690, the top marginal rate would drop from 33 to 31 percent.

GASOLINE TAX: The tax on a gallon of gasoline would increase by 5 cents, to 14 cents. That's down from 12 cents a gallon in the defeated budget package and 9{ cents a gallon in the Senate plan.

ALCOHOL TAX: Tax on a six-pack of beer would double, from 16 cents to 32 cents. The tax on wine and liquor also would increase. In addition, the plan would raise taxes on cigarettes and luxury items.