House OKs Hike in Taxes on Rich : Budget: The increase is part of a deficit reduction package approved 227 to 203. The margin is too small to override a threatened veto. Bush prefers a Senate plan.

Ignoring a presidential veto threat, the House on Tuesday approved a Democratic deficit reduction plan that would raise taxes primarily on the rich but affect every taxpayer, setting up a confrontation that could bring another government shutdown next weekend.

The five-year, $500-billion proposal--the largest deficit-cutting measure in history--was approved on a roll call vote of 227 to 203, mainly along party lines. Ten Republicans joined 217 Democrats in voting for the proposal, and 163 GOP lawmakers were supported by 40 Democrats in opposing it.

The 24-vote margin reflected a victory for Democratic leaders, who lobbied hard for the package, but it fell far short of the two-thirds majority needed to override a Bush veto.

The measure now goes to the Senate, which has drafted a bipartisan budget plan of its own that Bush has said he finds more acceptable. The chamber is slated to vote on the measure today or Thursday.

Although the House plan is likely to be diluted in a House-Senate conference committee later this week, Bush warned again Tuesday that he would veto the measure if the House tax increase provisions remained.

“They’re saying it’s a ‘soak-the-rich’ deal, but inevitably . . . it gets in the pocket of every working man and woman,” the President told a GOP fund-raising event in Des Moines.

“I’m not going to do that,” he told audiences on earlier political stops in Iowa and Illinois.

Earlier, the House by a 238-192 vote adopted the tax provisions of the package after Democratic leaders refused to allow a vote on a Republican proposal that would have cut the deficit by $400 billion while avoiding any tax increase at all.

In all, 228 Democrats and 10 Republicans voted for the tax part of the plan, whereas 164 Republicans and 28 Democrats opposed it. Although this margin was substantial, it too was considerably short of the two-thirds needed for an override.

Bush canceled plans to be in Cincinnati today to attend the second game of the World Series. White House officials said Senate Minority Leader Bob Dole (R-Kan.) and House Minority Leader Robert H. Michel (R-Ill.) had asked him to return to Washington.

Overall, the bill would trim the budget deficit by $40.3 billion this fiscal year and $459.7 billion over the following four years.

In essence, the House-passed package seeks to shift the burden of the deficit reduction away from the middle-class and more toward the wealthiest taxpayers. It also would ease cutbacks in Medicare benefits contained in the earlier accord and not raise gasoline taxes.

Tuesday’s action came 12 days after the House decisively defeated, by a vote of 254 to 179, a bipartisan budget summit agreement that had been negotiated over 4 1/2 months by top White House officials and Democratic and Republican congressional leaders.

After the bipartisan plan was rejected, House Democrats drafted their own alternative plan. On Monday, Republicans came up with an eleventh-hour proposal to cut spending by $400 billion while adhering to Bush’s earlier “no-new-taxes” pledge, which he has abandoned.

Democrats, who seized the initiative themselves in hopes of breaking the impasse over the budget, displayed rare unity Tuesday, with liberals and conservatives joining to support the election-year measure.

Republicans, clearly outnumbered, decried the bill as a revival of “class warfare.”

Bush has warned that, if the lawmakers do not produce an acceptable budget agreement by midnight Friday, he will shut down the federal government, as he did over the Columbus Day weekend. House leaders insisted that they will be able to meet the deadline.

Bush’s major objection to the House measure is to a series of provisions that would raise taxes by about $175 billion over the next five years, primarily for those earning more than $50,000 a year. The increases would be especially heavy for upper-income taxpayers.

The major elements of the package would:

--Increase the top income-tax rate for the wealthiest taxpayers--mainly those earning $200,000 a year or more--to 33%, from 28% now, and raise the alternative minimum tax, paid largely by wealthy people with large deductions, to 25%, from 21% now.

--Impose a 10% surtax on all people whose taxable incomes amount to $1 million or more.

--Impose a 10% luxury tax on cars priced above $30,000, furs costing $10,000 or more, jewelry priced at $5,000 or more and yachts and airplanes costing more than $100,000.

--Increase the tax burden for all Americans by delaying for one year the automatic adjustment of the personal exemption and of the standard income-tax brackets--a move that would raise an additional $36 billion over five years.

--Raise the cost of Medicare insurance by increasing monthly insurance premiums to $46.20 by 1995--from $28.60 now--and requiring Medicare recipients to pay the first $100 of their physicians’ bills each year instead of $75, as is the case now.

--Apply the existing 1.45% health insurance payroll tax on the first $100,000 of a person’s wages, rather than the first $51,300, as now is the case. The measure also for the first time would require state and local employees to pay the Medicare tax.

--In an appeal to middle-income taxpayers, allow a once-in-a-lifetime tax-free profit of up to $100,000 on the sale of real estate, farms, businesses and timbers--but not stocks or bonds. A separate, annual gain of $1,000 also would be allowed for people with incomes of less than $100,000. The $100,000 tax-free profit would be in addition to the $125,000 tax-free gain now allowed on the sale of a residence by those 55 and over.

--Double the federal beer tax to 32 cents per six-pack, raise taxes on wine from 3 cents a bottle to 25 cents a bottle and increase the tax on hard liquor by $1 for each proof gallon. Cigarette taxes would be raised by 8 cents a pack.

--Raise the airline ticket tax to 10% from the present 8%.

--Provide larger tax breaks for working poor families by raising the earned income tax credit by $11 billion.

The four-hour debate on the House measure was filled with harsh partisan rhetoric, along with appeals by some lawmakers for Congress to demonstrate a sense of national responsibility and approve the largest deficit-cutting plan ever considered.

Noting that Bush has warned that he will veto the proposal, Rep. Lynn Martin (R-Ill.) declared: “If you (Democrats) want to bring down the government with your game of chicken, you will bear the full responsibility.”

Rep. Jerry Huckaby (D-La.), a conservative, argued on behalf of the plan put forward by Democrats on the House Ways and Means panel, saying: “This is a fair package. Let’s make it happen and get on with the business of America.”

At issue was a basic difference in approach by the two parties. Republicans insisted in their latest budget plan that more than $400 billion could be sliced from the deficit by spending cuts alone, without new taxes.

Democrats, however, said there is no way to reach the President’s goal of reducing red-ink spending by $500 billion over the next five years without raising taxes and said their package would put the greatest new tax burdens on the very rich.

“It’s fair,” said Rep. Mickey Edwards (R-Okla.), with heavy sarcasm. “It hits everybody--the rich, the middle income, the poor--across the board. More taxes on everything.”

But Rep. Leon E. Panetta (D-Carmel Valley), floor manager of the bill, argued that the Democratic alternative is a balanced package with spending and benefit cuts accounting for two-thirds of the deficit reduction and tax increases representing only 30% of the whole budget package.

“This nation is in crisis,” Panetta said, urging swift approval of the budget plan so that the Senate could act today in time to send a compromise version to the President’s desk before current spending authority expires at midnight Friday.

The divisions in the House were evident from the outset when Michel tried to protest a party line decision by the House Rules Committee to prevent a vote on a Republican alternative. The GOP appeal was rejected, 231 to 195.

Meanwhile, the Senate Finance Committee approved its own bipartisan deficit reduction package that hewed more closely to the rejected bipartisan deal by including a 9.5-cent-a-gallon gasoline tax and by not raising top-bracket tax rates.

But the Senate plan would raise taxes on people making $100,000 or more a year by limiting their deductions.

Operating with rare speed, Senate and House negotiators were expected to work out a compromise for ratification by both chambers in the next few days.

Republican critics noted that the Democratic alternative would hit middle-income families hard by delaying inflation adjustments of tax brackets and the current $2,050 personal exemption. They charged that the delay would amount to a massive tax increase for the middle class.

A TALE OF TWO TAX PLANS

A comparison of key provisions of rival tax proposals approved by the Senate Finance Committee and House Ways and Means Committee. INCOME TAX Senate: Would increase taxes on wealthier Americans by disallowing $500 in deductions for every $10,000 in income above $100,000. House: Would increase the marginal tax rate to 33% from 28% for top-bracket taxpayers, add a 10% surtax on incomes above $1 million and boost the alternative minimum tax paid by those who claim large deductions. Would delay inflation adjustments for tax brackets and personal exemptions for one year.

CAPITAL GAINS Senate: No change. House: Would reduce maximum tax on capital gains to 28% from 33%. Would allow a one-time, lifetime exclusion of up to $100,000 on gains from real estate and some other assets, but not stocks. Would allow an exclusion of up to $1,000 a year for gains from stocks and most other assets except collectibles. The annual exclusion would be reduced for high-income taxpayers.

MEDICARE Senate: Would increase the ceiling on wages subject to the 1.45% Medicare tax to $89,000 from current $51,300. Would boost the premium for Part B doctor bill coverage to $29.90 a month in 1991 and to $46.20 in 1995 from current $28.60. Would increase Part B deductible to $150 a year from $75 and require beneficiaries to pay 20% of cost of lab tests. House: Would raise wage ceiling subject to Medicare tax to $100,000. Would increase Part B premium by same amount as Senate proposal. Would boost annual deductible to $100.

GASOLINE TAX Senate: Would increase the tax by 4 cents a gallon on Dec. 1, by another 5 cents on July 1, 1991, and by another 1/2 cent on Jan. 1, 1992. The current tax is 9 cents. House: No change.

TOBACCO TAX Senate: Would increase the tax by 4 cents a pack on Jan. 1, 1991, and by another 4 cents in 1993. The current tax is 16 cents. House: Same as Senate proposal.

ALCOHOL TAX Senate: Would boost beer tax by 16 cents a six-pack, the wine tax by 18 cents a bottle and the liquor tax by $1.20 a proof gallon. House: Would increase beer tax by 16 cents, wine tax by 22 cents and liquor tax by $1.

LUXURY TAX Senate: Would impose 10% tax on the cost above $30,000 for cars, $100,000 for boats, $5,000 for jewelry and furs and $250,000 for planes other than business aircraft. House: Same as Senate for cars, boats and jewelry. Would impose 10% tax on cost above $10,000 for furs and $100,000 for planes. Cars, boats and planes used to carry fare-paying passengers would be exempt.

LOW-INCOME CREDIT Senate: Would increase earned income tax credit for working poor by $5 billion over five years. Would provide another $11.8 billion over five years in child-care aid. House: Would increase earned income credit by $11 billion over five years.