Budget negotiators hopeful of meeting deficit deadline


WASHINGTON -- Congressional leaders expressed optimism yesterday that a budget deal would be struck in time to avoid gashing, automatic budget cuts scheduled for Monday.

"We're a little bit in the precincts of reaching a conclusion, rather than the wrap-up stage," said House Speaker Thomas S. Foley, D-Wash. "A good deal has been agreed to tentatively."

President Bush, meanwhile, cranked up the rhetorical pressure on the budget negotiators, wrapping up his swing through the Midwest by blaming the Democrats for the continuing budgetary standoff and painting a dreary picture of life in America under the arbitrary regime of the automatic spending reductions.

"One hundred billion dollars in budget cuts will hit hard against all Americans," Mr. Bush said in a speech at a fund-raising lunch in Cleveland for Ohio Republican candidates. As an example of what could happen, the president said the cuts would halt cleanup of the country's worst hazardous waste pollution sites -- an alarming prospect in Cleveland, where industrial pollution is a hot political issue.

During his two-day fund-raising trip to Ohio, Illinois, Minnesota and Michigan, Mr. Bush assumed the role of a fiscal Cassandra, warning the nation of imminent financial doom if the impending cuts in government services actually occur. To that end, he has chosen some of the most dramatic and alarming examples of potential disruptions -- including delays in Social Security payments, mass cancellations of airline flights and the transformation of once-bountiful supermarket meat sections into barren, Muscovite stretches of empty shelves.

In Washington, meanwhile, Mr. Bush's representatives to the budget talks continued to thrash out ideas with congressional leaders behind closed doors. Sources said that Republicans introduced a new budget proposal yesterday, parts of which were quickly rejected by the Democrats.

Still, participants in the proceedings and close observers expressed optimism that a deal could be struck, perhaps as early as today -- largely because of the Bush administration's expressed willingness to back off from its demand for a cut in the capital gains tax rate.

If a deal is consummated today, lawmakers would have time to adopt the budget plan Sunday and pass legislation needed to suspend the automatic cuts.

Republicans continued to press for inflation indexing of capital gains, a substitute for an outright reduction in the tax rate on investment income. To compensate for the expected shortfall in government revenues that the indexing plan would create, the Republicans proposed limiting itemized deductions for individuals making over $200,000 a year to 90 percent or 95 percent of their value.

Republicans also suggested "growth-oriented" tax measures -- including a 25 percent deduction for investment in firms with equity under $500 million and tax breaks to encourage investment in economically depressed areas of inner cities.

In addition, Republicans proposed a three-month delay in cost-of-living increases for the nation's 39 million Social Security recipients. Also under the GOP plan, higher-income Social Security recipients, who already pay tax on half their benefits, would see that percentage rise to 85 percent.

It was not clear which, if any, of these proposals would wind up in a final package. House Majority Leader Richard A. Gephardt, D-Mo., initially accepted the Republicans' proposal for the limitation on tax deductions in exchange for the indexing of capital gains. But Mr. Gephardt's position generated a cry among his fellow Democrats, who insisted that he retreat and fall back on the Democrats' oft-stated insistence on an increase in the tax rate paid by the highest-income wage-earners.

The reaction against Mr. Gephardt's move suggested that any package meeting the negotiators' goals -- a deficit reduction of $50 billion during the coming fiscal year and of $450 billion in the following four years -- would come under heavy fire from rank-and-file lawmakers looking anxiously toward impending elections.

Already, Republicans and Democrats have begun whispering discontent to their respective leaders, warning that each side was prepared to give away too much to the other.

Such talk triggered speculation that an eventual budget agreement could be rejected and that the budget negotiators might have to come back with a less far-reaching, more modest deal.

But a number of lawmakers said they were uncertain that Congress would agree to suspend the automatic cuts in favor of a budget plan viewed as a cop-out.

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