Demos Open Door to Budget : Seek to Avert Government Shutdown

Democratic congressional leaders said today they had dropped their demand for a surtax on the wealthy, apparently clearing the way to a deficit-reduction plan acceptable to President Bush and most members of Congress and averting a government shutdown at midnight.

“We’re going to get an agreement this week,” said House Speaker Thomas S. Foley. “Today, I hope.”

The deficit-reduction plan coming into focus would, according to one Democratic leader:

- Raise the top income-tax rate on the wealthiest Americans from the current 28% to 31%.

- Phase out the personal exemption, now $2,050 per person, for the well-to-do while reducing the deductions they can claim by 3%.

The income levels at which the exemption and deduction changes would apply had not been finalized. But it appeared likely that deductions would be reduced for people earning more than $300,000 yearly.

With the Democrats’ shift, Congress seemed likely to approve by Saturday a five-year measure raising taxes on gasoline by about 5 cents a gallon while boosting levies on cigarettes, alcohol and airline tickets.

Projected increases in Medicare spending would be reduced by somewhat more than $40 billion, and other cuts would be made in a broad range of benefit programs, including those affecting veterans and farmers.

Of the dropped demand for a surtax on the wealthy, Foley said, “It appears this is not something the Administration will support.”

Asked if the new proposal was likely to contain the higher top tax rate, the exemption phase-out and the deduction limitations, House Majority Leader Richard A. Gephardt (D-Mo.) said, “That may be the outcome.”

Just Tuesday, about half of the House’s Democrats indicated at a closed meeting that they preferred a plan placing a 7.5% surtax on people earning $1 million or more a year.

But today, Democrats said that with election day less than two weeks off, they decided it was time for a budget agreement to be struck and for Congress to adjourn.

“Members have a feeling it’s time to bring this Congress to a close,” said one top Democrat. “We’ve debated the issues for a long time. The time has come for a decision.”