Every American Will Feel Impact of the Budget Ax : Deficit: Higher taxes on gas, tobacco and alcohol are almost certain to be part of any deal. Medicare recipients will also probably be affected.

In a host of prickly ways, every American would feel the impact of the five-year, $500-billion deficit-reduction package that budget negotiators are struggling to complete by Sunday night.

Officials already have agreed on key elements that would, among other things, raise gasoline taxes, boost tobacco and alcohol levies, impose a new tax on purchases of luxury goods, require 33 million Medicare recipients to pay more for health coverage and limit subsidies to farmers. These are almost certain to be included in whatever final agreement ultimately emerges from the months-long negotiations.

White House and congressional leaders still face several obstacles, however, that could block a deal this weekend--possibly throwing the federal government into chaos Monday morning.

“So close and yet we’re not quite there,” said House Minority Leader Robert H. Michel of Illinois after a session broke up Friday morning.

The unresolved issues revolve around whether to tax Social Security benefits, how to prevent a proposed cut in capital gains taxes from being a windfall for the wealthy, and what rules to impose to ensure that Congress delivers on promised spending cuts over the next five years.

Whatever happens on Capitol Hill this weekend, Americans should start counting on taxes going up next year by about $25 billion and government spending to be cut by roughly the same amount.

Over the next five years, any budget compromise that is approved is expected to raise tax revenues by more than $130 billion, cut defense programs by about $170 billion below the level required to keep up with inflation, and hold down the growth in federal benefits by trimming roughly $120 billion from Medicare, farm subsidies and other government entitlements. The rest of the savings is supposed to come from lower interest payments on the national debt.

Congressional leaders acknowledged that any significant deficit-reduction program is bound to pinch large numbers of voters and would generate storms of protest from affected groups.

“If we get a package, I would hope people would look at the positive side of getting it done and having deficit reduction,” said House Majority Leader Richard A. Gephardt of Missouri. “If all of us just focus on the individual negative features, we’re going to miss the forest for the trees.”

The main advantage of cutting the deficit should be lower interest rates.

Earlier this year, the Congressional Budget Office predicted that a five-year, $500-billion deficit package, by reducing the federal government’s borrowing needs, would cause short-term Treasury bill rates to fall from roughly 7.6% this year to an average of about 6.9% in 1991 and 5.4% by 1995. Long-term interest rates would decline from about 8.5% in 1990 to 6.8% by 1995, according to the CBO forecast.

The study was conducted in July, however, prior to the Iraqi invasion of Kuwait that sent oil prices soaring. That has added to inflationary fears and made it more difficult for the Federal Reserve to encourage rates to fall.

But any such gains from lower borrowing costs would come at a price for Americans who have grown accustomed to the large federal deficits of the past decade, during which government outlays have vastly exceeded revenues from taxes and fees imposed on the public.

Many of Washington’s most powerful interest groups are bracing to absorb the coming wave of tax increases.

“Right now, I feel like I’m walking around with a bull’s-eye on my back,” said Jeff Becker, an official with the Beer Institute here.

Federal beer taxes average 16 cents for a six-pack, bringing in about $1.7 billion in annual revenues. Along with higher taxes on all alcoholic beverages, budget negotiators want to double the tax on beer, generating an extra $1.5 billion a year in beer tax revenues.

The combined tax increase for beer, wine and distilled liquor is supposed to raise $13.6 billion over the next five years.

Cigarette taxes, now 16 cents a pack, would probably rise by less than 10 cents a pack, adding more than $6 billion to government coffers from 1991 through 1995.

Negotiators also have tentatively agreed to increase the 9-cents-per-gallon federal gasoline tax to 17 cents, raising nearly $40 billion over five years. Each penny increase in gasoline taxes costs drivers about $1 billion a year.

The American Petroleum Institute, while conceding that relatively small gasoline tax hikes do little to limit consumption, opposes any increase on the grounds that it would be “inequitable.”

“It hurts farm areas more than city areas, the West more than places like New York City,” said API spokesman Joseph Lasteic.

Budget negotiators also are planning to levy a separate tax on all fuels based on their energy content.

Medicare recipients, who pay $28.60 a month for a doctor’s care, are one of the principal targets of the budget negotiations. Monthly premiums once covered 50% of such costs of the health insurance program for the elderly and disabled, but the share of the benefits paid by its 33 million recipients has fallen to just under 25%.

The budget talks are focusing on a plan to gradually increase the premium to cover 30% of all costs, which would impose an increase of $5.70 next year and higher monthly costs in subsequent years. The yearly deductible for hospital costs would double from $75 to $150. The plan is supposed to raise $30 billion in revenues over five years.

Doctors and hospitals would be required to hold down costs by about $30 billion as well.

To help cover Medicare’s skyrocketing costs, Democrats also have proposed to boost the amount more affluent workers would pay to support the program. Currently, as part of Social Security withholding payments, employees are assessed a 1.45% tax on earnings up to $51,300, with employers paying an equal amount. There are various proposals to raise the ceiling to $65,000 or $75,000.

Other proposals also are aimed at requiring richer Americans to pay higher taxes. Negotiators have agreed to impose a 10% tax on the value of automobiles in excess of $30,000, and a similar luxury tax on costly furs, jewelry, electronic equipment and private airplanes.

But the two parties are still divided over how to trade off a cut in capital gains taxes, which are levied on profits from investments in stocks, bonds, real estate and the like, against higher income taxes on taxpayers with annual incomes above $200,000.

Times staff writer Jim Risen contributed to this story.