Bush Willing to Propose Tax Hikes : Budget: Lawmakers say White House has offered to raise liquor levy, cut federal deductions. The move is part of $50-billion package to reduce deficit.

The Bush Administration Thursday signaled its willingness to propose limited new tax increases to help forge a budget compromise, but key lawmakers said that the move is unlikely to produce an agreement before Congress is scheduled to leave town for its August vacation.

Republican negotiators said that the White House, as part of a broad deficit-reduction package of more than $50 billion, offered to raise liquor taxes and to limit federal deductions for payment of state and local taxes to $10,000.

The sketchy plan, lawmakers said, calls also for a cut in federal benefit programs of about $16 billion, in part by requiring the elderly to pay more for Medicare and by eliminating an annual cost-of-living raise for military and civilian government retirees.

Budget negotiators said that the move is the first specific sign of serious bargaining in the 11-week-old talks, which have been essentially deadlocked for several weeks.

But the White House proposal--which was backed as an opening gambit by GOP leaders in a meeting late Wednesday night--still falls well short of the kind of final package that would be acceptable to all sides.

Democrats, who were in the midst of trying to prepare their own proposal Thursday, said that the two parties remained deeply split on several key issues.

“We have drawn closer,” said Rep. William H. Gray III of Pennsylvania, the third-ranking Democrat in the House, but “we are still somewhere on the 35-yard line and they’re on their 35-yard line.”

House Majority Leader Richard A. Gephardt (D-Mo.) told reporters after leaving the White House Thursday morning: “Substantive negotiation is about to really take form.”

But he added that there still are “large and tough and difficult disagreements to bridge.”

Despite the signs of a break in the budget logjam, negotiators said Thursday that they see little chance of striking a final deal by Aug. 3, when lawmakers plan to recess until after Labor Day.

Although White House officials suggested that Bush might be tempted to ask Congress to stay in session an extra week or so, both Democrats and Republicans on Capitol Hill indicated that they expect to talk Bush out of any such move.

Some strategists fear that the threat of postponing their vacation might coax lawmakers into averting an expected floor fight on a bill to increase the ceiling on the national debt, which is needed to enable the government to continue routine borrowing.

Some negotiators still hope that they can obtain congressional approval of a budget deal before Oct. 15, the date on which automatic spending cuts of more than $100 billion are scheduled to take effect under provisions of the Gramm-Rudman deficit-reduction law.

But others suggested that passage of a final package might have to await a postelection lame-duck session.

Few details of the new White House proposal were available late Thursday. Sen. Bob Packwood (R-Ore.) told reporters that the plan consists of about $50 billion in savings, split about equally between tax increases and spending cuts.

The plan, which continues to call for a cut in capital gains taxes, would raise about $25 billion in taxes and fees, including those from Bush’s earlier proposals for a number of scattered tax increases, officials said.

Budget negotiators have been discussing a number of tax increases, including a new broad-based tax on energy, a boost in the income tax rate on the richest taxpayers to 33%, higher cigarette and luxury taxes and a variety of limits on itemized tax deductions.

Disclosure that the White House would propose to cap federal deductions for state and local taxes occurred as Mario M. Cuomo, governor of New York, arrived in Washington to join in lobbying against any change in the federal tax status of state and local tax deductions.

Nearly all those affected by a $10,000 limit on state and local tax deductions earn more than $100,000. But Cuomo, although advocating higher taxes on the rich, said that the proposal would be unfair to states such as New York and California, which have high tax burdens.

The White House plan includes about $6 billion in Medicare reductions but would not cut Social Security benefits. The plan calls for roughly $7 billion in military cutbacks--well short of Democratic objectives--and about $4 billion in savings from domestic programs.

Without any changes in current policy, next year’s underlying federal deficit is expected to reach at least $169 billion. That does not count extra money needed to finance the S&L; cleanup operation.

Congress is expected to exclude the S&L; bailout money from its budget calculations because the bailout is considered likely to involve sharp, unpredictable swings in outlays over the next few years.