Budget negotiators face weekend hunting a deal


WASHINGTON -- Congressional leaders and White House officials began the final push for a long-deferred budget deal yesterday, expecting to work through the weekend to avoid slashing, automatic budget cuts scheduled to take effect Monday.

With negotiators' backs against the wall, House Speaker Thomas S. Foley, D-Wash., said Republican and Democratic participants in the talks were close to settling on a $500 billion, five-year budget pact -- but not close enough to promise that the automatic spending reductions would not begin disrupting federal services Monday.

"There are some remaining issues that are very difficult that we're working to resolve," he said. "Everyone is working in the spirit of good faith and, I think, seriousness."

By all accounts, however, they remained stalled over the perpetually nettlesome issues of whether to tamper with Social Security benefits and whether to provide a special tax break on investment profits, better known as capital gains.

Republicans have agreed to abandon President Bush's long-cherished goal for a cut in the capital gains tax rate, proposing instead to exempt from taxation increases in the value of the asset due to inflation.

Democrats, however, have remained steadfast in their insistence on an increase in the income tax rate levied on the highest income-earners, asserting that the benefits of any kind of capital gains tax relaxation would fall mostly to the well-off.

GOP negotiators have suggested limiting deductions for those making over $100,000 a year to 90 percent or 95 percent of their value.

But Democrats have objected to limits on deductions, including state and local taxes, in part because it would tend to penalize people living in high-tax states, such as New York -- states that tend to be Democratic strongholds.

"We called the Democrats' bluff [on capital gains]," said one Republican staff aide involved in the budget negotiations. "Now we're seeing what they're really made of."

Even if a package is crafted this weekend, winning the support of a majority of Democrats and Republicans is uncertain.

"There's going to be a great deal of difficulty, obviously, on any package that provides for the reduction of $500 billion over five years and $50 billion in the first year," said Mr. Foley.

Indeed, the eventual package is expected to be packed with provisions guaranteed to raise the ire of many lawmakers.

The two sides have tentatively agreed to shave $170 billion off the amount needed to keep the defense budget even with inflation. The Pentagon would endure a $10 billion cut next year.

The growth of benefit programs would be slowed by $120 billion. Roughly half that figure would come from the Medicare program, which provides health care to 33 million elderly and disabled people. Half of the Medicare savings would come from a $5.70 increase in the $28.60 monthly premium that participants pay for doctors' coverage. Doctors and hospitals would have to absorb the other half of the Medicare reductions.

Over the course of five years, support payments to farmers would fall by $12 billion, and benefits for civil servants would be cut by $14 billion.

It also appeared probable that Social Security recipients would be docked for $20 billion in savings, either by a three-month delay in their cost-of-living increases or by an increase in taxes levied on their benefits.

Tax increases, in fact, will be present in spades in this agreement. Negotiators have tentatively agreed to increase the 9-cent-per-gallon federal gas tax by 8 cents, to slap an additional tax on all fuels and to impose a 10 percent tax on luxury items such as yachts, expensive electronic equipment and jewelry.

"I think all of us know none of us is going to be happy with the budget resolution," said Representative Steny Hoyer, D-Md.-5th.

But if the Bush administration and Congress fail to agree on a deficit-reduction package by Monday, $85 billion worth of arbitrary spending cuts will be triggered, disrupting hundreds of programs. Social Security benefits and military pay would be protected -- but more than a million federal workers have been told to expect furloughs.

Just in case the two sides cannot agree, or in case they agree on a budget the full Congress will not support, House Democrats have devised a fallback plan. Over opposition of Republicans, the House Appropriations Committee has cleared the way for House action on an alternative Democratic budget, something President Bush has promised he would oppose.

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