Intensive Budget Talks Started by Negotiators : Deficit: Key lawmakers appear ready to make quick trade-offs to beat deadline. Bush signs funding bill.

WASHINGTON — House and Senate negotiators sketched the outlines of a budget compromise Friday as they opened intensive weekend talks on how to produce a $500-billion deficit-reduction plan that can clear a sharply divided Congress and win President Bush’s approval.

Working against a self-imposed Sunday deadline, key Democrats and Republicans appeared prepared to make quick trade-offs as they shape a final version of a five-year budget package from separate bills approved by the House and the Senate.

Meanwhile, President Bush signed a stopgap resolution to avoid a government shutdown this weekend and continue federal spending at least through midnight Wednesday, giving Congress breathing room to conclude a deal.

Professing optimism about the prospects for a new accord, the President visited Capitol Hill to encourage leaders in both chambers to keep going until they reach agreement. Some key lawmakers, however, said prospects for final congressional ratification of another compromise were far from a sure thing.

The President’s visit came as sources close to the back-room bargaining said negotiators were discussing possible concessions in several key areas.

House Democrats signaled they would be willing to abandon their drive to raise top-bracket income tax rates to 33% from 28%, which would have been virtually certain to prompt a presidential veto.

Senate negotiators indicated that they would consider reducing the 9.5-cent-a-gallon gasoline tax increase in their plan, and key House negotiators, whose bill contained no gas tax hike, said they could accept an increase of a nickel a gallon.

Any gasoline tax increases included in a final deficit-reduction deal could be particularly sensitive in California, which raised its gasoline levy by 5 cents on Aug. 1. Four additional 1-cent increases will be phased in between now and Jan. 1, 1994.

In return for possible concessions on the top income tax rate and gasoline tax, House members insisted on provisions that would place more of the burden on wealthier taxpayers, such as a proposed 10% surtax on taxable income above $1 million. Senators indicated they might accept such a deal.

Other possible vehicles for increasing taxes on wealthier taxpayers would be a provision of the Senate bill that would disallow $500 in deductions for every $10,000 in income above $100,000, and a House proposal to increase the alternative minimum tax for high-income taxpayers.

Rep. Leon E. Panetta (D-Carmel Valley) said the key issue dividing the two sides was whether to raise top income tax rates. “If you quickly resolve that, everything else would fall into place,” he said. “I think the pieces are there. It’s just a question of how you juggle--who’s going to give.”

Senate Minority Leader Bob Dole (R-Kan.) said in an interview that compromises appeared likely on the gasoline tax, Medicare cutbacks and upper-income taxation.

“We don’t really have that many issues, that many hot buttons, left,” Dole said.

In view of the Senate’s narrow 54-46 approval early Friday of a deficit-cutting measure endorsed by the President and bipartisan leaders, however, the negotiators moved with care to avoid losing any votes in either chamber by lawmakers suffering from election jitters.

In describing the budget bill as the most important issue of Bush’s presidency, Dole said:

“I felt like I was taking a cold shower when I looked at that vote tally and saw an eight-vote difference . . . . We really don’t have much wiggle room in the conference if we’re going to pass the bill in the Senate.”

Ironically, Bush must rely on Democrats to pass a budget bill in the House in view of strong opposition by House Republicans to any tax increases, which are a major part of both the Senate and House measures.

“It’s going to be very tenuous as we go on from here,” said Senate Minority Whip Alan K. Simpson (R-Wyo.), noting that every member of the Senate facing a serious reelection challenge voted against the Bush-endorsed budget measure.

Visiting Capitol Hill to bolster the fragile coalition of 31 Democrats and 23 Republicans who backed the Senate plan, Bush showed signs of flexibility on terms of a new accord between the Senate and the House.

“I, for the first time, feel optimistic,” Bush told a group of visitors from the Italian-American Foundation at the White House. “If you want to make something happen, you have to sit and work very hard and give a little and take a little.”

House Democrats, determined to demand “fairness” in any Senate-House tax package, rallied behind Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, at a Friday morning caucus.

“You can bet your life, if a package is going to pass in this House, it’s going to include (taxes directed at) the rich,” said Rep. Charles B. Rangel (D-N. Y.), who added that higher gasoline taxes could be part of a compromise, too.

“To the extent that any tax on gasoline can be reduced--not necessarily eliminated, but reduced--it will have favor in the Democratic caucus,” Speaker Thomas S. Foley (D-Wash.) said afterward.

Rep. Vic Fazio (D-Sacramento), vice chairman of the caucus, said Democrats were concerned primarily about protecting the elderly from Medicare cost increases and shielding middle-income taxpayers from an undue tax burden.

“If the President can’t count on his own party to provide him with many votes in the House, particularly, we’re going to have to find a package that we can get an extraordinary majority of Democrats to support,” Fazio said.

Some House Republicans who voted against a previous budget summit agreement that had the support of the President and bipartisan congressional leaders said they would oppose a Senate-House compromise bill as well.

“All the things they are discussing would make it less attractive for us, not more attractive,” Rep. Vin Weber (R-Minn.) said.

Staff writer David Lauter contributed to this story.

TAX BUBBLE: The arcane adjustment in the tax rate appears to give the rich a break. But does it? D1

DUELING DEFICIT PLANS A comparison of the rival Senate and House deficit reduction proposals: DEFENSE HOUSE: Cut spending $10 billion in 1991

Cut $180 billion over 5 years SENATE: Same as House FARM SUBSIDIES HOUSE: Reduce eligible acreage 15%

Cut $13.7 billion over 5 years SENATE: Same as House MEDICARE HOUSE: Boost wage ceiling to $100,000

Monthly premium $29.90 in 1991

Premium rises to $46.20 in 1995

Boost deductible to $100 SENATE: Increase wage ceiling to $89,000

Premiums same as House

Hike deductible to $150

20% lab test copayments

INCOME TAX HOUSE: Raise top tax rate to 33%

Impose 10% surtax on the rich

Raise alternative minimum tax

Delay inflation adjustments SENATE: Reduce deductions for the wealthy CAPITAL GAINS HOUSE: Reduce top rate to 28%

$100,000 lifetime exclusion

$1,000 annual exclusion

SENATE: No change LOW-INCOME CREDIT HOUSE: Up $11 billion over 5 years SENATE: Up $5 billion over 5 years

Plus $11.8 billion for child care GASOLINE HOUSE: No increase SENATE: Boost tax 4 on Dec. 1

Another 5 on July 1

Another 1/2 Jan. 1, 1992 CIGARETTES HOUSE: Boost tax 4 a pack Jan. 1

Another 4 in 1993 SENATE: Same as House ALCOHOL HOUSE: Boost beer tax 16 a six-pack

Increase wine tax 22 a bottle

Up liquor tax $1 a proof gallon SENATE: Beer same as House

Boost wine tax 18 a bottle

Hike liquor tax $1.20 LUXURY TAX HOUSE: 10% surtax on high-priced items SENATE: Similar to House proposal AIR TRAVEL HOUSE: Boost ticket tax to 10% Dec. 1 SENATE: Same increase, but on Jan. 1