Congress Constrained as Budget Talks Resume : Deficit: The Gulf crisis and weaker economy make it harder for negotiators to cut spending and raise taxes.

With the Persian Gulf crisis and a weaker economy imposing new constraints on their decisions, bipartisan negotiators resume bogged-down budget talks today with long odds against achieving their goals of cutting the federal deficit by $50 billion next year and $500 billion by 1995.

Republican and Democratic leaders said they would do their best to achieve a solid agreement in three days of intensive discussions this weekend in seclusion at nearby Andrews Air Force Base, despite the lack of any major progress since talks were convened by President Bush in May.

Their self-imposed deadline, however, could be extended because the alternative to an agreement--sweeping, automatic federal spending cuts--would not take effect until next month.

On a positive note, both sides said they would exchange their first formal settlement proposals at the first session of the so-called budget summit held since Congress took off on its August recess more than a month ago.

Congressional sources said the Democratic proposal would call for higher taxes on the wealthiest Americans and other tax increases to raise about $23 billion in the first year.

Republicans planned to present a budget blueprint, first leaked last July, that would raise taxes on beer, wine and liquor but reduce the capital gains tax on the sale of assets.

Sharp differences remained, however, not only on taxes but also on the levels of defense and domestic spending, on the eve of the make-or-break discussions to slice a federal deficit that will soar to an estimated $250 billion in the fiscal year starting Oct. 1.

Congressional aides said the initial offers would contain few surprises and represented an opening position for further bargaining.

Even if the budget talks produce an agreement including tax increases and spending reductions, however, it may face tough sledding two months before congressional elections in November.

House Republican Whip Newt Gingrich of Georgia, one of the GOP negotiators, has openly taken issue with Bush’s support for tax increases, saying they could tip the nation into a deep recession that would raise the deficit even further.

Without an agreement, the Bush Administration has said it would impose drastic spending cuts of $100 billion or more under the Gramm-Rudman law that governs the federal budget process.

The cuts would be triggered unless the deficit is cut to $64 billion next year--a clearly impossible task. Any agreement, however, would involve amending the Gramm-Rudman law to raise the target to a higher level.

President Bush, who in the past has accused the Democrats in Congress of blocking a settlement of the deficit crisis, said the time for partisan attacks was over and the hour of decision had arrived.

“Congress, let’s get with it,” Bush said in Kansas, where he was campaigning for a Republican gubernatorial candidate. “The time for avoiding the tough decisions is gone. They’re not going to do it exactly the way I want, and I understand that. And I can’t do it exactly the way one element or another in the Congress wants, and I think they must understand that . . . . Let’s fix this federal budget mess once and for all.”

Bush planned to address the negotiators today before departing for a Gulf crisis summit meeting in Helsinki, Finland, with Soviet President Mikhail S. Gorbachev.

There were strong indications that Bush wanted an agreement before his return on Monday. The President plans to address Congress and the nation Tuesday night on his talks with Gorbachev and would like to report progress on the deficit at the same time.

But the obstacles to an agreement remained, and because of the costly American military deployment in Saudi Arabia after Iraq’s invasion of Kuwait, they appeared likely to be even more difficult to overcome.

Democrats were counting on a major reduction in Pentagon spending to achieve a $50-billion cut in red-ink spending in the first year of a five-year budget deal, but the gulf crisis now may preclude such immediate savings.

At the same time, signs of a softening economy have awakened fears among many lawmakers that tax increases or spending reductions might weaken it further by reducing consumer buying power and government demand for goods and services.

In addition, earlier support for a broad-based energy tax appears to have waned in response to rising oil prices and possible shortages caused by the disruption of supplies from Kuwait and Iraq. Senate Minority Leader Bob Dole (R-Kan.), in fact, advocated new incentives for American oil producers to make the United States more self-sufficient in energy.

Aides said Republicans and Democrats would exchange their rival deficit-cutting plans at the morning session and then try to compromise their differences in an atmosphere free of distractions or other congressional business.

Although most of the proposals would represent true reductions in the deficit, one aide said there would be a small amount of “smoke and mirrors,” or phony cuts.

“We’re prepared to do what it takes, as long as it takes,” Senate Majority Leader George J. Mitchell (D-Me.) said. But Mitchell and other Democratic leaders said their party’s proposal was still being hammered out on the eve of the talks, indicating the difficulty of reaching accord even on one side of the aisle.

“I think it’s still possible to get an agreement,” Dole told reporters. “We haven’t decided anything for sure,” said House Minority Leader Robert H. Michel (R-Ill.), who said it would not be easy to ensure that any agreement is iron-clad through changes in the budget process.

Despite the wide gap between the two sides, the potential consequences of sharp cuts in spending that would be split equally between the Pentagon and most domestic programs could produce an agreement, the leading negotiators said.

“If we don’t get a budget agreement, we’re all in real trouble,” Dole said. “That means everybody--Congress, the President. That’s why we have got to do it.”

But Dole conceded that even an accord worked out at the top level “could all blow up on the floor” of Congress when it comes to a vote.

Gingrich, who said he was unequivocally opposed to any increase in income taxes, said there would be terrific pressure on Congress to work out a budget package if the automatic spending cuts take effect, crippling federal services.

“There’s a fair amount of pressure in the Congress to find a solution,” Gingrich said in a luncheon speech. “Everything’s dancing near the table.”