President Harshly Attacks Democrats on Budget Talks : Politics: He vows to take the issue to "every state in the union" if massive federal cutbacks are implemented.

TIMES STAFF WRITERS

In his harshest partisan attack since taking office, President Bush accused Democratic leaders Wednesday of blocking a budget agreement and warned that he would "take that message into every state in the union" if negotiations fail.

Top Democrats, surprised by Bush's strident remarks as the bargaining nears a critical stage, responded by charging that the President is "badly misinformed" and could undermine chances for an accord with his political rhetoric.

The sharp exchanges occurred as Bush Administration officials met again with congressional leaders of both parties to pursue their efforts to get a five-year, $500-billion deficit-cutting deal before Monday, when massive spending cuts are scheduled to take effect.

If no accord is reached and the deadline imposed by the Gramm-Rudman deficit reduction law is not extended, spending on defense and many domestic programs will be cut by about a third, forcing major service disruptions and furloughs of federal employees.

Earlier Wednesday, rank-and-file Democrats accused Bush of being ready to shut down the government just to back up his demand for a capital gains tax cut that would give the biggest benefits to the wealthiest Americans.

However, a testy President shot back: "The hang-up is not capital gains--the hang-up is with the Democrats on Capitol Hill."

Bush appeared to be reacting to Republican fears that Democratic characterizations of the GOP as a party favoring the rich at the expense of middle-class and lower-income workers was having an impact as voters prepared to go to the polls in November.

The prospect of a partial shut-down of government services and temporary layoffs of hundreds of thousands of federal employees has escalated the political stakes and triggered a round of blame-trading between Republicans and Democrats on Capitol Hill.

Although he has criticized the Democrats' budget tactics on previous occasions since the talks began at his suggestion last May, the President's sharper tone Wednesday clearly represented a change in strategy. His spokesman, Marlin Fitzwater, said that it had been prompted by lack of progress in the negotiations, adding: "When the President speaks, America listens."

On foreign policy, however, the President sought to preserve bipartisan harmony by praising Democrats in Congress for supporting his policies in the Persian Gulf and the Desert Shield deployment of U.S. troops in Saudi Arabia.

"I am grateful that Democrats and Republicans in the House and Senate are pulling together," Bush said of the near-universal Capitol Hill backing for his policy of reversing Iraq's seizure of Kuwait.

Before leaving on a two-day political trip to the Midwest, Bush met with Republican leaders, who said afterward that the President may be ready to drop his demand for a capital gains tax cut in return for Democratic concessions on other investment incentives to stimulate the lagging economy. However, a White House spokesman said: "Nothing's changed."

Despite that statement, congressional Republicans said that the Administration had intimated that it might be willing to offer a variation on its earlier demands. That twist would allow investors who sell assets to index their profits. They thus would avoid paying capital gains taxes on profits attributable to inflation.

The President departed from his usual conciliatory language on the campaign trail to paint a stark picture of the impact of a $100-billion cutback on federal agencies and government workers facing lengthy leaves without pay if there is no budget agreement.

Air travel will be disrupted by layoffs of air traffic controllers, needy students will lose federal financial aid and farmers will be deprived of U.S. programs right at harvest time, Bush warned.

"If and when the ax falls, the Democratic Congress knows it will be held accountable," the President said. "It's their fault for holding up getting a budget agreement."

House Democratic leaders scheduled a vote today on a bill that would delay the Gramm-Rudman cuts until Oct. 20. The President has promised to veto a deadline extension on grounds that it would just postpone hard decisions on deficit reduction.

Taking time out from the budget negotiations, Senate Majority Leader George J. Mitchell (D-Me.) and House Speaker Thomas S. Foley (D-Wash.) stressed that Democrats had offered several package proposals, including a new offer Wednesday morning.

The White House had said previously that Bush confers "morning, noon and night" with his representatives at the talks--White House Chief of Staff John H. Sununu, Budget Director Richard G. Darman and Treasury Secretary Nicholas F. Brady.

"The President's statement creates a highly misleading and damaging impression about our participation in these negotiations," Mitchell said. "We hope the President will set the record straight and join us in a constructive effort to deal with this serious national problem."

Other Democrats were not so restrained. "The road to Armageddon is paved with the President's intention to give a tax cut to the rich," said Rep. Bryan L. Dorgan (D-N.D.). House Majority Whip William H. Gray III (D-Pa.) said that Bush is willing to shut down the government just to get a capital gains tax cut for the wealthy.

In a speech Wednesday night in Chicago, Bush appeared to soften his stance. He conceded that in "private negotiations" Democrats had made some budget proposals and said that, if he had indicated otherwise, "I apologize." Nevertheless, he contended that the Democrats had yet to offer a "comprehensive plan" that includes spending cuts and enforcement measures.

There were conflicting reports about the gap remaining between the White House and the top-level Democratic team conducting the talks. Although some sources close to the bargaining said that an agreement could be reached soon, others declared that the parties remain far apart, particularly on key tax and spending issues.

The Capitol Hill negotiations ended before midnight Wednesday, partly because the participants were weary from a session that lasted until 2:15 a.m. the night before.

"We're making progress," Sununu said.

"Not much," muttered Sen. Bob Dole of Kansas, the Senate Republican leader.

Reform of the budget process and several other issues were still unsettled, Dole told reporters, adding: "We're working on it." Another session was scheduled tentatively for mid-day today.

Meantime, Republicans in the House said they plan to push a bill that would give the President emergency powers to allocate enough funds to keep essential federal services in operation even if the cutbacks take place Monday as scheduled.

Democrats prepared a contingency deficit-cutting package that they hope to offer in case the protracted talks end without accord. It remains doubtful, however, whether their combination of tax increases and spending cuts to produce a $50-billion reduction in the deficit could be passed in either the House or Senate without presidential and Republican support.

In fact, even a bipartisan agreement recommended by Bush and the leaders of both parties might have a difficult time getting a majority vote in both chambers, GOP and Democratic leaders have acknowledged.

Meanwhile, hundreds of federal workers rallied outside the Capitol to express their concern about the furloughs that would occur if automatic spending cuts are triggered on Monday. "Congress, you do your jobs so we can do ours," read one of the placards. Another signaled political retaliation: "Your furlough begins Nov. 6, Election Day."

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