WASHINGTON -- Under mounting pressure to conclude an agreement on cutting $50 billion from next year's federal deficit, White House and congressional budget negotiators remained at loggerheads yesterday over the issue that has dogged them for the past four months: reducing the tax rate for capital gains.
Documents made available to reporters late yesterday showed that the latest Republican proposal on taxes includes tax breaks for business, including oil and gas producers, as well as the capital-gains tax reduction.
These tax cuts would be offset by limits on the deductibility of state and local income taxes.
Lawmakers say such limits would disproportionately hurt states such as New York and California, which rely heavily on their income taxes to finance a variety of programs.
The Republican proposal also calls for increases in taxes on beer and wine and gasoline and other petroleum products, among other measures.
According to Congress' bipartisan Joint Committee on Taxation, the net effect of the Republican tax proposal would be tax increases for Americans with incomes under $50,000, while those with incomes above $50,000 would receive tax cuts.
The committee said Americans with incomes over $200,000 a year would receive a tax cut totaling $7.4 billion in the first year.
With some elements of the deficit package at least tentatively agreed to, participants in the talks said the central issue dividing the negotiators was the demand by Republicans for reducing the gains rate and insistence from Democrats that such a cut be accompanied by an increase in taxes for the wealthy.
Democrats have said they would drop their demand for a tax increase on upper-income Americans if Republicans would forgo the capital gains cut, but as one participant put it, "the Republicans didn't bite."
During yesterday's session, John H. Sununu, the White House chief of staff, argued that all the deficit-reduction measures contemplated by negotiators would be a drag on an already weak economy and that cutting the capital-gains tax rate would provide a stimulus by creating jobs and investment.
Democrats countered that measures such as higher excise taxes on gasoline and cuts in federal benefit programs would strike hardest at low- and middle-income Americans and that the wealthy should bear their fair share with an increase in income taxes.
Congressional tax experts have said that 90 percent of the direct benefits from reducing the capital gains tax would go to the wealthiest 10 percent of taxpayers.
The negotiators have been meeting at Andrews Air Force Base just outside Washington for the past week.
House Speaker Thomas S. Foley, D-Wash., told reporters that it was quite possible the talks could go through the weekend.
As word of some spending cuts under consideration, particularly those involving the Medicare program, reached Capitol Hill, lawmakers in both parties began to protest.
Mr. Foley got a taste of the backlash yesterday morning in a stormy meeting with leading members who told him they would not accept some premium increases and benefit reductions being contemplated in the health program for the elderly.
With the GOP arguing equally vehemently that the elderly should not bear what Sen. John McCain, R-Ariz., called "an unconscionable burden," there were signs that the negotiators were considering a change.
People involved in the negotiations said the final deficit-reduction package now seemed likely to include some form of tax increase for gasoline as well as for alcoholic beverages. Many lawmakers in both parties said they thought a boost in cigarette taxes was also likely, but that issue remained unresolved.