As deadline nears, budget talks heat up Congress schedules rare Sunday session to pass extension

September 30, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun Sun staff correspondent Karen Hosler in New York contributed to this article.

WASHINGTON -- Budget negotiators forged ahead yesterday amid reports that they were close to agreement on a sweeping, five-year budget deal in time to stave off disruptive automatic budget cuts looming tomorrow.

With that deadline in mind, the House and Senate scheduled an unusual Sunday session in anticipation that an agreement would be reached. If all goes according to plan, the two chambers would approve legislation temporarily extending the government's ability to spend money into the new fiscal year, pTC which begins after midnight, to get the time needed to craft the actual legislation implementing the budget deal.

President Bush then would sign the extension bill tonight.

"I'm getting quite optimistic," House Speaker Thomas S. Foley, D- Wash., said.

President Bush, during a meeting in New York with Colombian President Cesar Gaviria, said the budget negotiations were "advancing a little bit. . . . We're getting closer and closer. It's like pulling teeth."

Congressional leaders and White House officials are seeking to hammer together a package of spending reductions and tax increases that would trim the deficit by $50 billion in the new fiscal year and by an additional $450 billion in the following four years. If they are unable to do that, $85 billion of across-the-board cuts are to slice through hundreds of government programs, sparing a few, such as Social Security, but wreaking havoc with others and resulting in the furlough of up to a million federal workers tomorrow morning.

The talks have been volatile to the last. At one point yesterday, Republican and Democratic negotiators were said to have been within $5 billion of each other's proposals both in the amount of taxes to be raised and in the amount of spending to be cut, according to one participant.

Senate Minority Leader Bob Dole, R-Kan., told staff members to expect a completed deal some time in late afternoon. But then, according to the source, Democrats began pressing Republicans to agree to more tax increases, and GOP negotiators stormed out of that session.

Late Friday, a major impediment to an agreement appeared to have been removed when Republicans told their Democratic counterparts they were ready to abandon President Bush's demand for a reduction in the tax rate imposed on investment income, or capital gains, from the sale of stocks, real estate and other assets.

The Republican concession came after a day when both sides had traded proposals to lower taxes on capital gains, while offsetting that cut with increased taxes on high-income earners. Sources close to the closed-door talks said neither side was able to bridge the gap between the proposals, thus prompting the White House to signal its willingness to abandon its long-sought goal of reducing the capital gains rate.

Republicans have insisted, however, that any deficit-reduction package include measures to spur economic growth and stimulate investment, among which a lower capital gains rate had been a recent Republican favorite. Yesterday, Mr. Dole said the negotiators were "looking at other options, growth options."

Several sources have said that the two sides have tentatively agreed to include in the package tax breaks for venture-capital investment and investment in economically depressed

urban areas and that they were discussing easing the tax levied on capital gains from the sale of long-held investment in small business.

Those sources also said that the Democrats had managed to win GOP agreement to a plan that would limit most itemized deductions to 90 percent of their value for individuals making more than $100,000 a year.

The provision was a variant one that was originally promoted by GOP negotiators as a way to compensate for the windfall that a capital gains tax cut would provide the well-to-do. The plan was promoted by Democrats as a tool to ensure that the cost of the overall deficit-reduction package did not fall disproportionately on the middle class.

Less clear was the way negotiators would come to terms with one of the most nettlesome issues before them: how to tamper with Social Security benefits.

Democrats have proposed increasing the taxable portion of Social Security benefits received by those with higher incomes. At present, the rate stands at 50 percent. The Democrats have proposed increasing it to 85 percent. Republicans have suggested a two- or three-month delay in a cost-of-living benefits increase due to take effect in January.

As a compromise, one source said, the two sides had tentatively agreed to increase that 50 percent rate to 70 percent.

Budget negotiators from both parties conceded that either approach would probably undermine support among rank-and-file lawmakers for the final deficit-reduction package. But they also noted that the package is fairly packed with provisions that will disappoint and disgruntle many members of Congress.

On Friday, negotiators were said to have tentatively agreed to scale back contemplated increases in beer and wine taxes. But the budget plan seems certain to include new liquor taxes, a new "luxury" tax on high-priced items, a new tax on all forms of energy and, in all likelihood, an increase in the existing federal levy on gasoline.

In the quest for five years and $500 billion worth of deficit reduction, the package is also expected to include $120 billion of cuts in domestic spending, and a $170 billion slim-down in the military budget.

"I would be very surprised," said Representative Jim Slattery, D-Kan., "if the budget agreement passes the first time it comes around."

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