WASHINGTON -- President Bush said yesterday he may agree to raise income tax rates for the wealthiest Americans in exchange for more favorable treatment on capital gains, signaling a willingness to go beyond what his negotiators have proposed in budget talks.
"That's on the table," Mr. Bush said at a White House news conference. "If it can be worked out in a proper balance between the capital gains rate and income tax changes, fine."
But hours later, aides said the president had been convinced during a meeting with Republican senators not to consider such a trade because the Democrats probably would get the better end of the bargain.
"They said we're never going to get the balance we want with capital gains, so let's forget it," deputy White House press secretary Alixe Glen reported. "The president told them, 'OK, if that's what you want.' "
Mr. Bush's seemingly speedy turn-about illustrated the volatility of an issue that has been at the heart of the budget-cutting debate since talks began earlier this year.
By publicly dropping the administration's resistance to an increase in the personal income tax rates, the president appeared to abandon the last vestige of his "no new taxes" pledge of the 1988 campaign.
His comments were taken as a sign by lawmakers now working to come up with details of the $500 billion, five-year budget plan adopted early yesterday that Mr. Bush is open to any reasonable offer inhopes of making a substantial cut in the nation's soaring budget deficit.
"What struck me as most important was the atmosphere of his remarks," said a staff aide to the tax-writing House Ways and Means Committee, which is expected shortly to consider a proposal along the lines of what Mr. Bush was discussing. "He was saying, 'Let's all get together and work something out.' "
But at the same time, the president said he might enlist in the anti-incumbent campaign now building around the country by speaking out on the stump during the next few weeks in favor of limiting congressional terms.
"I think . . . people want a chance against the incumbents up there on the Hill," said Mr. Bush, who has complained repeatedly about having to deal with a Democratic majority in Congress that is dominated by well-entrenched leaders.
California and Colorado, two states where Mr. Bush is expected to campaign before the Nov. 6 election, both have term-limit questions on the ballot. The California referendum applies only to state legislators, but its success is thought likely to have at least an attitudinal impact on Congress.
On the tax issue, the president indicated for the first time yesterday that he may be willing to completely eliminate the so-called "bubble" that gives the wealthiest Americans a marginal tax rate of 28 percent while taxing those with upper-middle incomes at the top rate of 33 percent.
For a married couple filing jointly in 1990, the 33 percent rate applies to adjusted gross incomes between $78,400 and $162,077. Couples reporting higher incomes would pay at the rate of 28 percent.
White House spokesman Marlin Fitzwater cautioned that such an increase in the income tax rates would have to be offset by a deep cut in the capital gains rate, to perhaps 15 percent. Capital gains, earned from the sale of assets, are currently taxed at the same rate as earned income.
At his meeting with the Republican senators yesterday afternoon, Mr. Bush was warned that the Democrats who control the tax-writing committees were never going to reduce the capital gains rate enough to make the trade-off worthwhile.
But Mr. Bush, who told reporters he has been "pulling and tugging" to get a budget agreement for nearly five months, said, "I want to get something done in these committees. I don't think it would be helpful to draw a line in the sand."
In announcing the budget agreement he reached with congressional leaders last week, the president proclaimed that, despite its calls for higher gasoline, cigarette, alcohol and luxury taxes, the package could claim the virtue of leaving the personal income tax rates intact.
Mr. Bush acknowledged yesterday that his previous resistance to such tax increases -- particularly his "read my lips" anti-tax pledge -- "makes it more difficult" for fellow Republicans who supported him then to join him now that he's willing to raise taxes in order to cut the budget deficit.
But the president said he has no regrets, noting that "changed economics" since the campaign have convinced him to "go forward from here."
This is what Congress and the president must do to avoid another fiscal crisis -- either across-the-board spending cuts of $105.7 billion, as ordered by the Gramm-Rudman deficit reduction law, or a general shutdown of federal activities.
Only two deadlines are involved, and only the second one matters.