Senate OKs Deficit Plan; Government Shutdown Averted : Budget: The package is endorsed by the President but must be reconciled with a spending measure passed by the House. Bush will sign a stopgap spending bill.

The Senate early Friday approved a $500-billion deficit-cutting package endorsed by President Bush and moved toward negotiations with the House on a new compromise plan as a threatened weekend shutdown of the federal government was averted.

Prodded by Republican and Democratic leaders, the Senate voted, 54 to 46, for the legislation, which--like a rival plan passed earlier by the House--calls for the largest combination of spending cuts and tax increases ever adopted.

California’s senators split on the measure, with Democrat Alan Cranston voting in favor and Pete Wilson voting no. Overall, 32 Democrats and 22 Republicans voted for the measure while 23 Democrats and 23 Republicans voted against it.

Earlier, the White House had sent word to Capitol Hill that the President would sign a stopgap resolution to continue federal spending through Wednesday while the lawmakers concluded their deliberations. The House subsequently approved such a bill by a vote of 379 to 37.

Senate approval of the budget measure brings what may be the final stage of the 5-month-old effort to reach an agreement between the Bush Administration and the Democrat-controlled Congress on slashing the federal deficit. The Senate and House budget plans now go to a conference committee that will try to hammer out an agreement that can be ratified by both chambers and then signed into law by President Bush.

Meantime, Bush renewed his warning that he would not accept the Democratic bill passed by the House because, he said, it would raise income tax rates in ways that would “sock it to the middle class and working people of this country.”

Appearing before a group of White House interns, Bush defended himself against Democratic arguments that he was trying to protect the wealthiest Americans by resisting tax rate boosts.

“When tax rates get too high . . . there is no incentive to save or to invest,” the President said. “When some members of Congress talk about ‘soaking the rich,’ they really do mean raising taxes on everybody.”

Democratic and Republican leaders of the Senate successfully stiff-armed attempts to alter the Senate legislation during daylong debate Friday on the unprecedented election year combination of spending cuts and tax increases.

The bipartisan bill would raise gasoline taxes by 9.5 cents a gallon, limit deductions by 5% for those making more than $100,000 a year and apply the 1.45% health insurance payroll tax to the first $89,000 of earnings each year instead of the $51,300 ceiling now in effect.

In contrast, the House-approved plan would raise the top tax rate to 33%, impose a 10% surtax on taxable income of more than $1 million and raise almost everyone’s taxes by a one-year delay in inflation adjustments of tax brackets and personal exemptions. It also contains a reduction in capital gains tax rates designed mainly for people with incomes of less than $100,000 a year but would retain federal gasoline taxes at the current 9 cents a gallon. Both bills would raise taxes on beer, wine, hard liquor and cigarettes and impose a luxury tax on the most expensive cars, yachts, private planes, furs and jewelry.

They also would make a wide variety of spending reductions for farm subsidies, veterans’ benefits, federal lump-sum retirement payments and other government services, while raising dozens of user fees and penalties for violations of federal laws.

The Senate rejected several attempts to raise top-bracket rates, soften the impact of Medicare cuts on the elderly and enact a 10% surtax on millionaires.

Senate Majority Leader George J. Mitchell (D-Me.), who said he agreed with many of the proposals, argued that their passage would lead to a Bush veto of the legislation and therefore should be defeated to avoid a continued deadlock between Congress and the White House.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Finance Committee, said he personally favors an increase in top tax rates but he strongly opposed efforts to revise the bill, which his committee had approved by a 15-5 bipartisan vote.

But Bentsen indicated that he would seek during the Senate-House bargaining to place a greater burden on the wealthy than the Senate bill provides.

“Let us go to conference and pick the best of each” of the Senate and House bills,” and put together a package that Democrats and Republicans can get behind,” Bentsen said. “That has to mean an increase in progressivity as far as I am concerned--it will be the objective.”

The Senate narrowly rejected, 51 to 49, an attempt to adopt the House-passed “millionaires’ surtax” and use the revenue to eliminate a proposed increase in the deductible for doctor bills paid by Medicare beneficiaries. Under the rules for consideration of the budget act, however, it would have required 60 votes to pass the amendment introduced by Sen. Tom Harkin (D-Iowa).

Another plan to raise the top tax rate to 33%, cut the proposed gas tax increase to 6 cents a gallon and soften the bill’s impact on Medicare patients was rejected, 55 to 45.

Sen. David L. Boren (D-Okla.) tried but failed, 57 to 42, to include a trade-off between lower capital gains rates for long-held assets and an increase to 33% in the top income tax rate.

On each of the so-called deal busters, Mitchell, Minority Leader Bob Dole (R-Kan.) and their lieutenants combined forces to block major changes in the committee package.

“We’ve got to get this job done,” Mitchell thundered at one point. “Do we want to make a statement or do we want to make a law?”

Each senator had a foot-high copy of the 1,064-page budget reconciliation bill on his desk. The debate began in midmorning and continued into the early hours today on what for the Senate was an extremely fast track.

Overall, the Senate bill would cut the deficit by $28.4 billion in this fiscal year and by $252.5 billion over the next five years. Additional cuts in appropriations, mainly for defense, would trim red-ink spending by another $12 billion in the next year and by $180 billion between now and 1995. Savings in interest payments on the debt would make up the balance of the $500-billion package.

Without the continuing resolution approved by the House and expected to be approved by the Senate and signed by Bush today, massive spending cuts of $85.3 billion would be imposed Saturday.

Staff writer David Lauter contributed to this story.