Bush May Tax the Rich Too : Government Workers Back on Job

President Bush signed emergency legislation today restoring business as usual for the federal government, and said he is willing to raise income tax rates on wealthy Americans if a final budget includes his long-sought cut in the capital-gains tax.

Bush said he would do “everything in my power” to see that Congress follows up in the next few days with a five-year plan to cut the deficit by $500 billion.

Federal workers breathed a collective sigh of relief that there would be no forced furloughs. The government, closed over the holiday weekend due to the budget impasse, had faced the prospect of a shutdown of non-essential services today without an agreement.

The President met with reporters as lawmakers, exhausted after a string of late-night sessions, were returning to the work of deciding precisely which spending programs to cut and whose taxes to raise.

Asked about the possibility of raising tax rates on the wealthy, Bush said: “That’s on the table. That’s been talked about. And if it’s proper, if it can be worked in proper balance between the capital-gains rate and income tax changes, fine.”

It was the first time Bush has said explicitly that he could go along with a hike in income tax rates. His opposition to changing the rate structure had been the last remnant of another campaign pledge: “no new taxes”

Senate Majority Leader George J. Mitchell (D-Me) said he was heartened by Bush’s statement.

“I have personally advocated (an increased tax rate) on those making more than $200,000 a year for some time,” he said. “And I’m pleased that the President has now come around, or apparently come around, to our point of view.”

Under Monday’s late-night agreement between the White House and Congress, that work must be completed by Oct. 19--or the government faces the risk of yet another shutdown in services.

The budget crisis erupted last week when the House rejected a bipartisan plan that called for $134 billion in tax increases and a wide array of military and program spending cuts. Increases in Medicare fees were rolled back slightly and an alternative plan has been approved, although it contains fewer specifics than the one that was rejected.

Democrats have complained the budget plans have been unfairly weighted against the middle-income taxpayers to the benefit of wealthier Americans, and Bush’s remarks indicated that the final tax package is still in negotiation. One subject: the “bubble” by which some taxpayers pay a 33% rate rather than the 28% rate applied to the wealthiest taxpayers.

Bush pledged to work with Congress on filling in the gaping blanks in the deficit-cutting agreement. “I will do everything in my power to encourage Congress as it struggles to bring forth the most comprehensive and significant deficit cutting plan ever,” he said.

The President took pains to defend his top aides for their help in the budget confrontation with Congress. White House Chief of Staff John H. Sununu and Budget Director Richard G. Darman have come in for criticism from Republicans and Democrats, who accuse them of high-handed tactics.

“When passions get high, there’s bound to be a little broken china,” Bush said.