Bush Sends New Signals as Budget Confusion Grows : Deficit: The President’s stand on lower capital gains rates and higher income tax rates for the very rich is left in doubt. Democrats have new proposals of their own.

The confusion over the federal budget situation intensified Thursday as President Bush again sent conflicting signals over his stand on key tax issues while congressional Democrats made new proposals of their own for cutting the budget deficit.

During a series of separate meetings with groups of House Republicans, Bush first left the impression that he would support a so-called trade-off in which Congress cut tax rates on capital gains sharply while increasing income tax rates for the very rich.

But an hour after the lawmakers left the session, the President poured cold water on the whole notion, sending Press Secretary Marlin Fitzwater to tell reporters that he does not believe such a compromise is possible and fears that even pursuing it now might backfire.

Bush said at one point that he would not agree to raising tax rates for high-income Americans to more than 31%, from 28% now. He said that raising rates to 33%--as Democrats want--would “start us back on the path toward higher income-tax rates for everyone.”

At the same time, the President appeared at one point to be optimistic. “It’s coming forward, and we will get a (budget deficit-reduction) deal, I’m convinced,” he said. “Nobody’s going to get it exactly the way they want.”

Bush’s comments came as, separately, the House Ways and Means Committee drafted a new Democratic alternative to the bipartisan budget accord that the House rejected earlier this month that would seem to fly in the face of what Bush has said he wants to see.

The new Democratic package, expected to go to the House floor next week, would boost income tax rates for the very wealthy to 33% to eliminate the so-called “bubble” in the tax code that enables top-bracket Americans to pay lower rates than those earning less.

It also would slash the proposed increase in gasoline taxes to 3 cents a gallon, down from 10 cents in the bipartisan plan, and it would provide for smaller increases in payments by Medicare beneficiaries than the version that was rejected by the House.

Panel chairman Dan Rostenkowski (D-Ill.) said that he still is considering whether to include a cut in capital-gains tax rates to make the plan more attractive to House Republicans and will decide after a Democratic caucus this morning.

Capital gains are the profits from the sale of stocks or other assets.

The House is expected to choose next week between the package endorsed by the Ways and Means Democrats and a rival Republican plan that would impose a one-year freeze on federal spending, cut the tax rate on capital gains to 15% and keep the gasoline tax as is.

The combination of developments heightened the appearance of disarray in Washington and intensified the already deep domestic political crisis in which the President has become embroiled over the budget deficit.

The President is under pressure from congressional Republicans, who fear that his image of vacillating on the budget issue may damage their own prospects in the Nov. 6 election and the party’s chances of recapturing the White House in 1992.

Meanwhile, financial markets, which view the United States as entering a period of serious financial and economic problems, plunged further Thursday. The stock market fell more than 42 points for its third sizable drop in a row. And the dollar fell on currency markets.

Rostenkowski’s plan--which includes a 10% surtax on persons with a taxable income of $1 million or more--has a “soak-the-rich” flavor that analysts say sharpens the differences between Republicans and Democrats and assures a major clash in the House.

Anticipating Republican arguments against the plan, the Ways and Means chairman denied that his panel was pursuing “class warfare.” Instead, he asserted, it was merely trying to reverse a decade-long trend that saw the tax burden shift away from the rich.

“This plan is both bold and fair,” Rostenkowski told reporters. “We have to work in the vineyard of Middle America.”

Meanwhile, the Senate Finance Committee postponed a meeting that it had scheduled for Thursday to consider a “bipartisan” deficit-reduction proposal. Nevertheless, committee strategists said that prospects appear good that lawmakers from both parties will support that plan.

Thursday’s Ways and Means package included most of the earlier, more-routine tax provisions that the panel approved the previous day. The entire measure was sent to the House Budget Committee, which will include it in a revised congressional budget resolution.

Here are the major elements of Thursday’s Ways and Means package:

--The tax rate for the highest income bracket of Americans would be raised to 33% from the current 28%, for couples with taxable incomes of $193,190 or more and individuals with taxable income above $113,460--breaking the so-called “bubble” that left them paying less than those with less income.

--The Social Security payroll tax, which also helps finance the Medicare program, would be imposed on the first $100,000 of a wage-earner’s annual income, instead of the first $53,300, as now is the case. The $100,000 cap would be indexed to rise with inflation.

--The federal gasoline tax, now 9 cents a gallon, would be boosted by 3 cents a gallon instead of the 10-cent-a-gallon rise prescribed by the original bipartisan budget accord that was voted down by the House. The increase had drawn protests from voters around the country.

--Cutbacks in Medicare benefits contained in the original plan would be scaled back. Premiums would be increased by less--to $29.90 a month in 1991, from $28.60 now and rise gradually to $46.20 in 1995. The bipartisan plan would have boosted it by $6 now.

At the same time, the deductible for Medicare beneficiaries would rise only to $100, from the current $75, instead of the $150 that the defeated bipartisan budget plan had recommended.

--The procedure under which income-tax brackets are increased to take account of inflation would be halted for a year, effectively raising the amount of taxes that Americans must pay by $17 billion.

Meanwhile, the Senate Finance Committee began drafting a separate deficit-cutting package Thursday in hopes of attracting bipartisan support in the Senate, where Democrats have only a 55-45 advantage over Republicans.

The plan would delete a 2-cent-a-gallon tax on home heating oil and other refined petroleum products that had been part of the original budget summit agreement. But it would raise federal taxes on gasoline by 9 cents a gallon, 1 cent below the earlier figure. The Finance Committee package also would provide for $3.1 billion worth of tax breaks to encourage oil drilling if the price of oil drops below $28 a barrel. Panel members put off a final decision on many segments of the package until today.

The move came as House Republicans, eager to win Bush’s support for their proposal to lower the capital gains tax to 15% and change the top-bracket rate to 31%, received a mixed blessing from the White House.

While he had supported such a trade-off at one stage during the drawn-out negotiations over the original $500-billion deficit-cutting package, Bush threw cold water on the key component of the House GOP alternative to Rostenkowski’s package.

“I think it’s a waste of time because I just don’t think it can get through both houses of Congress,” Bush said. “But I’m not going to deny House members an opportunity to do something that they think can be done. That’s not my role.”

But the President met with three groups of Republican House members to discuss the budget impasse and Rep. Bill Archer (R-Tex.), ranking GOP member of the Ways and Means panel, came away thinking that he had Bush’s support for the trade-off.

“Without equivocation, this is what he wanted to do,” Archer said of Bush.

The President, who indicated Tuesday that he would back some increase in top rates in return for lower taxes on profits from the sale of stocks, bonds and other assets, reversed himself later after meeting with Republican senators who don’t want to refight the issue now.

Rostenkowski said the new top bracket would affect 0.6% of all taxpayers. An aide estimated this would cover 600,000 to 700,000 tax returns, or about 1.5 million persons who file joint or individual returns.

Under the Democratic proposal, a provision to limit deductions of taxpayers with incomes of more than $100,000 was dropped and so was a provision to disallow deductions of interest paid by corporations on tax deficiencies.

Ways and Means Democrats also decided to retain higher taxes on beer and wine that were in the defeated agreement but modified a tax increase on distilled spirits, lowering the proposed increase from $1.50 to $1 a proof gallon.