Bush and GOP Weigh Tax Hike : Budget: A national sales levy is being discussed, Sen. Simpson says. The flurry of talks reflects concern about the economy and the deficit.

With the “no new taxes” taboo lifted by the White House, President Bush and Republican congressional leaders began Tuesday the politically treacherous task of considering possible tax hikes, including a national sales tax, according to a participant in the talks.

Despite the President’s decision that budget talks with Congress would be “unfettered” by preconditions, however, White House officials and others said that one form of revenue increase remained off limits: higher income taxes.

The flurry of tax talk, coming after Bush spent 15 months keeping a tight lid on such discussions, reflected deepening concern about the future of the economy, particularly the ballooning budget deficit and resulting high interest rates that slow economic activity.

The extent of that concern was evident in the scheduling of a series of budget meetings between Bush and senior members of Congress, including a session with key Republicans on Tuesday at which a type of national sales tax, often seen as an unacceptable option, was offered as one way to help trim the deficit.

While the magnitude of the deficit remains unclear, Budget Director Richard G. Darman told Republican senators that the government may have to come up with $60 billion to $100 billion in spending reductions or increased income to meet the deficit targets written into law.

Congressional budget experts expressed skepticism about Darman’s figures, which they said could change radically by the time a final budget is devised for the fiscal year that begins Oct. 1.

But even as the White House and Congress spar over the steep and fluctuating estimates, any efforts to reduce the deficit through tax increases will be complicated by the political realities they face as November’s congressional elections draw closer.

“We don’t want to get to late summer or early fall when everybody is freaking out on the campaign trail and can’t be really serious” about developing a deficit-reduction plan, a White House official said.

The sensitivity of the issue was reflected in a statement by Rep. Bill Frenzel of Minnesota, ranking Republican on the House Ways and Means Committee. Anticipat ing maneuvers by Republicans and Democrats to escape blame for raising taxes, Frenzel said: “Everyone devoutly wishes for an Immaculate Conception scenario. (But) it really can’t happen.”

The political obstacles also call into question the willingness of Congress and the White House to participate in a proposed budget “summit,” which would be the most likely vehicle for working out an agreement on taxes.

Frenzel said the odds were less than 50-50 that a budget summit would produce an agreement for substantial deficit reduction, but he added: “There’s more interest and more excitement about making a long-term budget agreement than ever before.”

But as congressional leaders took the lead in raising the sensitive issue of tax increases--allowing the White House to stay silent--the Administration seemed to be signaling that it would consider some tax increases more palatable than others.

Any revenue-raising measure, Darman warned last week, “must not hamper healthy economic growth”--a possible indication that a national sales tax would not pass muster with the Administration.

Such a tax, proposed in the past by Sen. Ernest F. Hollings (D-S.C.), also has been rejected repeatedly by lawmakers.

Democrats have rebuffed the proposal because they consider it a regressive tax that would place a greater burden on those of lower income. Republicans have viewed it as a money raiser that would simply flow through government coffers, while stifling consumer spending.

With tax talk gaining momentum in Washington--to the dismay of some at the White House who insisted Bush had not authorized his aides to talk freely about tax increases--one proposal remained in the background: the President’s plan to cut capital gains taxes.

Bush wants to reduce the tax on capital gains--the profits on sales of stocks, real estate and other investments--to 15% from the current rate of 28% to 33%. The proposal has been turned aside so far by Congress.

On Capitol Hill, meanwhile, congressional Democrats renewed their demand that all forms of taxes be subject to negotiation. House leaders said they were willing to meet with the President and listen to his proposals.

Bush planned to meet today with congressional leaders in an effort to assemble Administration and congressional teams to press ahead with a new round of talks intended to come up with a bipartisan plan to reduce the budget deficit.

In the view of the White House, any deficit-reduction accord must meet three tests: It must expand economic growth, cut the deficit and revise the budget process. In addition, all three must be incorporated in a single package.

The sudden talk about tax increases was fueled Tuesday morning when a feisty Sen. Alan K. Simpson (R-Wyo.) emerged from the White House after an hourlong meeting of Republican congressional leaders and the President.

Two days after Bush met with the most senior members of the House and Senate and agreed there could be no “preconditions” to budget talks, Simpson declared: “Nobody’s talking about raising income tax rates.

“George Bush is probably the oldest pro in the village as a political man, and no one is going to come out here and say that we’re going to do anything at all with income tax or income tax rates,” he said.

“I know there’s a great desire to grab the unholy word ‘tax’ and wrap it around (the President’s) head like a lavaliere, but that isn’t going to work,” Simpson added.

But, having said that, he added that while income taxes generally come to mind when taxes are considered, other options are available.

A value-added tax--in effect, a national sales tax--”is being discussed; it wasn’t before,” Simpson said, adding: “There are all sorts of user fees, revenue enhancers, the whole works.”

Staff writer William J. Eaton contributed to this story.