New Deficit Plan Heads for a Vote in Congress : Budget: The proposal softens Medicare cuts and gives committees leeway to shift tax burden to upper incomes.

Congress moved toward expected approval today of a new $500-billion deficit-reduction plan worked out by Democratic leaders in hopes of breaking a budget deadlock that has shut down much of the federal government for lack of funds.

The House was nearing a vote on the plan early today and the Senate is expected to consider it this afternoon. If the plan is approved as expected, congressional committees would work out details of spending cutbacks and new taxes over the next two weeks.

The new plan differs from an earlier package that was defeated in the House early Friday by softening proposed Medicare cuts and by giving Congress’ tax-writing committees leeway to raise taxes in ways that shift more of the burden to upper-income taxpayers.

Congress also would have to pass a funding resolution that would pay the government’s bills while those details are worked out. The measure would be needed to reopen government agencies Tuesday, when workers return from a long Columbus Day weekend. Without such a resolution, most federal workers would be sent home.

Sen. Pete V. Domenici (R-N.M.), ranking minority member of the Senate Budget Committee, said it was unclear whether President Bush would sign a new stopgap bill. He had vetoed similar legislation Saturday in an effort to goad Congress into acting on the burgeoning deficit.

Although the new proposal originated with Democrats, House Majority Leader Richard A. Gephardt (D-Mo.) said that it was designed to win the support of lawmakers in both parties as well as the President. The five-year plan was proposed by Democrats after Bush’s veto, which the House was unable to override.

Although Senate Republicans declined to formally endorse the plan, Senate Minority Leader Bob Dole (R-Kan.) indicated that he would back it if it reaches the Senate floor as expected.

“I want the process to move ahead,” he said, terming the Democratic plan “a small departure from the original budget summit.”

White House officials, who had helped negotiate the rejected plan, were excluded from the latest negotiations.

But, said Sen. Wyche Fowler Jr. (D-Ga.), “We have tried to preserve the bipartisan nature” of the plan.

Meanwhile, there were signs that Republicans might be willing to go along with Democratic demands for higher income taxes on the wealthy in return for a reduction in capital gains tax rates.

In a closed caucus called to explore GOP sentiment for striking a new budget deal with the Democrats--House Republicans overwhelmingly endorsed the trade-off with a show of hands. It marked a stunning reversal of the hard-line approach that GOP leaders had taken at the negotiations that produced the earlier budget pact.

But Democratic leaders said that consideration of such a tax trade-off would have to wait until congressional committees take up details of any new package.

The Democratic plan would reduce the extra share of Medicare costs that the program’s beneficiaries would have to pay to $12 billion over five years instead of the $30 billion in the package rejected early Friday--a move designed to gain crucial support of the elderly, who had protested the earlier plan.

Lawmakers on both sides of the aisle had been especially leery about angering senior citizens, who constitute a potent bloc of voters in congressional elections, now less than a month away. Last week’s plan sparked a barrage of phone calls and telegrams from the elderly.

House Speaker Thomas S. Foley (D-Wash.), who pleaded with Bush not to force a confrontation that might destroy chances for a new bipartisan budget, vented uncharacteristic fury over the President’s veto Sunday, even as he sought to reach a new compromise with Republicans.

He accused Bush of “creating a crisis that is totally artificial,” charging that “we’re injuring innocent people” affected by the shutdown.

“It’s like saying we ought to rebuild the fiscal house of this country, and he sets the house on fire for awhile to get our attention,” Foley complained as he spoke to reporters in an ornate lobby off the House floor.

He also sought to assuage rank-and-file Democratic lawmakers, who had been angered by the fact that they were left out of the 4 1/2-month-long negotiations between congressional leaders and top Bush Administration officials.

Foley said that the plan would contain aggregate figures for reducing spending and increasing taxes but that details would be left up to committees--mainly the House Ways and Means Committee and the Senate Finance Committee.

“There’s not a dime’s worth of tax increases--not 10 cents’ worth of cuts in the budget resolution,” he said. “It allows the committees to consider these issues.”

But that was just the thing that concerned Republicans most. Many voiced fears Sunday that if details of the plan are left to Democratic-controlled committees, the final package will not curb spending enough to keep tax increases to the bare minimum.

“I’ve got reservations about referring details to my committee,” said Rep. Bill Archer (R-Tex.), top-ranking Republican on the tax-writing Ways and Means panel. “We’re outnumbered, 23 to 12.”

As the drama was played out Sunday night, House Minority Whip Newt Gingrich (R-Ga.) pressed for a stopgap spending bill that would impose $40.1 billion in across-the-board cuts until Congress produces a permanent budget.

But the normally mild-mannered Foley erupted in fury at Gingrich’s suggestion that Congress was blocking a deal that would allow government operations to resume by refusing to cooperate with the White House.

“Of all the people in this House, in this country, that has little claim to cooperating with his President, it is the gentleman from Georgia,” Foley replied to cheers and applause from fellow Democrats.

Within minutes, House Majority Leader Gephardt stormed onto the floor to announce that he had been waiting for the last six hours in the office of Senate Majority Leader George J. Mitchell (D-Me.) with Senate budget negotiators from both parties, but that Rep. Bill Frenzel (R-Minn.), the House Republican budget negotiator, had not showed up.

“I hope that someone would come from your side,” Gephardt said, “so that what the President has asked us to do for five months and yesterday and today--to get a budget resolution--can be done.”

Frenzel apologized later for not appearing and said that he had been busy working on an alternative with GOP colleagues.

At their caucus Sunday, Republicans debated whether to continue seeking a compromise with the Democrats or instead adopt a strategy of confrontation, seeking to force Congress to enact deep spending cuts by persuading Bush to veto appropriations bills that are deemed excessive.

House Minority Leader Robert H. Michel (R-Ill.), one of those favoring a new bipartisan accord, asked for a show of hands on a proposal to cut the tax on capital gains to 20%--from the current 33%--in exchange for boosting the ordinary income tax rate on the wealthy to 32% from 28%.

Republicans said that the plan--which assertedly would reduce the deficit by $13 billion over five years--drew surprising support. “There was at least a two-thirds majority for it,” Rep. Jim Leach (R-Iowa) told reporters later. “I think the leadership was stunned.”

In recent days, even conservative Republicans such as Gingrich, who originally opposed income tax hikes, have shown a willingness to consider such a tax swap in hopes that lower capital gains rates would help stimulate the ailing economy.

However, White House Chief of Staff John H. Sununu said Sunday that the Administration still opposed raising the top income tax rate. “We think we ought to draw the line on tax rates and not raise the rates,” he said on CNN’s “Newsmaker Sunday” program.

Sununu, obviously rankled that Gingrich had led a House GOP rebellion that helped sink the original budget compromise, noted that it was Gingrich and other Republicans who had insisted earlier on holding fast against any change in income tax rates.

“This kind of flipping at this point on some of the specific markers that were laid down is kind of surprising,” Sununu said.