New package to cut deficit nears passage Stopgap money bill is passed to avert federal shutdown

October 25, 1990|By Peter Osterlund | Peter Osterlund,Washington Bureau of The Sun

WASHINGTON -- Congressional budget negotiators all but reached agreement yesterday on a sweeping deficit-reduction package that would boost taxes paid by upper-income earners, impose new levies on gasoline and slash billions of dollars from the Medicare program.

With yesterday's compromise, lawmakers expected to avert an impending midnight shutdown of the federal government, when stopgap spending legislation was to expire. Congress passed another short-term money bill last night to tide the government over through Saturday, when lawmakers hope to finish their legislative business for the year and head home.

Democratic leaders expressed confidence that the White House would support the emerging deal, and Senate Republican leader Bob Dole of Kansas said President Bush would sign the stopgap legislation.

The latest proposal abandons a Democratic demand for a "millionaire's surtax" and instead would raise income taxes on an entire class of upper-middle-income earners. It was unveiled before a closed-door meeting of House Democrats, many of whom unenthusiastically said they would support the deal only because they believed it represented the best attainable resolution to the months-old stalemate.

"It's an ugly deal," grimaced Representative Charles E. Schumer, D-N.Y. "It may also be the only deal we can get."

A clear majority of Republicans in the House have pledged to vote against any bill that increases taxes. Consequently, this deficit-reduction plan is given a slim chance of passage without the solid support of Democrats.

Nevertheless, Democratic leaders confidently predicted that the emerging agreement would win the votes of a sufficient number of lawmakers from both parties to assure House passage.

The package is generally expected to meet with approval in the Senate, where lawmakers appear less inclined to resist deficit-reduction proposals than do their colleagues in the House.

"I think we have a strong basis for an agreement," said House Speaker Thomas S. Foley, D-Wash. Democrats, he said, reached "a very, very strong consensus" to support the package.

Although Mr. Foley and his colleagues had hoped to have a bill ready for a House vote today, House Majority Leader Richard A. Gephardt, D-Mo., later said that such a timetable was "not realistic." Many details of the plan remained in flux last night and were due to be addressed in discussions with key Republicans this morning.

At least $40 billion in savings was to come from the Medicare program, for example. But congressional negotiators had yet to settle on an exact figure or to determine the proportion of savings to be realized by reduced payments to doctors and hospitals as opposed to higher premiums paid by beneficiaries.

Similarly, negotiators agreed to increase the 9-cent federal tax on gasoline and the 15-cent tax on diesel fuel by 5 cents each next year.

The broadest and most significant provisions appeared to have been set in place.

As the keystone to a promised five-year, $500 billion reduction in the federal budget deficit, the compromise proposal would raise levies on cigarettes, impose new taxes on luxury items and force spending cuts for a variety of federal benefit programs in addition to Medicare.

The plan would limit income tax deductions for better-off wage-earners, requiring them to reduce their write-offs by 3 percent of their income that exceeded $100,000 a year. It would not, however, impose a surtax on people with annual incomes over $1 million -- a Democratic demand until early yesterday, when the president flatly rejected entreaties from Republican leaders for a surtax.

Instead, the package would implement a complex income tax formula that effectively would eliminate the personal exemption for individuals with wages over $100,000 and for couples or families with incomes over $150,000. This, Mr. Foley said, "fully supplants the impact of the surtax."

The scheme immediately drew fire, since it would increase the marginal income tax rates -- the rate imposed on the last dollars of income -- on individuals and families by one-half of a percentage point for each exemption taken. Few Democrats said they would oppose the package because of it, however.

The package raises the top statutory income tax rate -- the highest rate levied on overall income -- from the current 28 percent to 31 percent. But, under the tangled schedule proposed yesterday, a family of four with an income of from $150,000 to $275,000 would be taxed at a marginal rate of 33 percent because that family would take four exemptions, which, in turn, would add 2 percentage points to their marginal tax rate. At $275,000, the personal exemption would be eliminated and the rate would fall back down to 31 percent. For individuals, that threshold is $225,000.

Those with more children -- and, consequently, more exemptions -- who fall within those boundaries would be taxed at higher marginal rates than those with fewer or no children.

The compromise

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