Impasse Broken on Taxes on Rich : Budget: Most House Democrats accept a compromise. The breakthrough wards off a government shutdown. Not all issues in deficit reduction plan are settled.

A threatened midnight shutdown of the federal government was averted Wednesday when most House Democrats accepted the outlines of a new budget compromise calling for tax increases aimed primarily at those making more than $100,000 a year.

While some issues remain to be negotiated, the Democrats’ strong show of support for the most controversial provisions of the package signaled the possible conclusion of a months-long battle between President Bush and Congress over a $500-billion deficit reduction plan.

The House, acting less than an hour before the deadline, extended the government’s spending authority for three more days until Saturday midnight by a vote of 380 to 45 and sent it to the Senate where it was finally approved. The White House announced that President Bush would sign the measure today because congressional negotiators were making satisfactory progress.

Congress was expected to finish work on the budget and other business and adjourn this weekend.

Speaker Thomas S. Foley (D-Wash.), who was rebuffed Tuesday by members of his own party on an alternative plan for raising taxes on the wealthiest Americans, said that he would try to bring the new agreement to a vote in the House today or Friday.

“We’re taking this as a green light, definitely,” the Speaker told reporters after the hourlong Democratic caucus ended with a burst of applause for Foley and House Majority Leader Richard A. Gephardt (D-Mo.).

“We ought to do it and get out,” said Rep. James H. Scheuer (D-N.Y.), reflecting a widespread belief among lawmakers that they must approve some kind of deficit-cutting plan before facing voters in the Nov. 6 elections.

But there still are some skeptics among House Democrats, who must come up with at least 80% of the votes needed to pass a budget plan in that chamber, since most Republicans have indicated that they will vote against any bill imposing new taxes.

The package is expected to clear the Senate with fewer problems.

Negotiators said that the package would increase the federal gasoline tax by 5 cents a gallon, impose higher taxes on wine, beer and cigarettes and hike airline ticket taxes to 10% from 8%. For Californians the gas tax increase would come on top of a state increase of 5 cents a gallon last Aug. 1. The state tax will go up 1 cent each Jan. 1 for four years.

The key compromise endorsed by House Democrats on Wednesday involves a combination of changes in income tax rates, exemptions and deductions that would have the combined effect of increasing the taxes paid by the most affluent Americans, a key goal of Democratic lawmakers.

The proposal calls for bursting the “bubble” contained in existing tax law by creating a new basic top tax rate of 31%--an increase from the 28% now paid by the wealthiest taxpayers but a reduction for some upper-middle-income taxpayers who currently pay at a 33% rate.

The negotiators also agreed in principle on a plan to further raise the top tax rate by 0.5% for every personal exemption claimed by individuals with income over $100,000 and by families with incomes over $150,000. An affected individual, for example, would have a top tax rate of 31.5%, while a childless couple would pay 32%.

Higher-income taxpayers also would be hit with a provision reducing their itemized deductions by an amount equal to 3% of any income exceeding $100,000. For example, a taxpayer with income of $200,000 would be required to reduce his deductions by $3,000. The provision would have the same effect as an additional rate increase.

In another provision affecting more affluent Americans, the final package would raise the ceiling on wages subject to the 1.45% Medicare payroll tax to $125,000 from the present $51,300 cutoff.

The package also contains little-noticed but powerful restraints on future spending by Congress.

For at least the next three years, the federal government will not be able to spend above certain separate limits on the military, domestic programs, foreign aid and benefit programs without triggering automatic cutbacks in those categories. In the final two years of the agreement, there would be some flexibility to boost domestic spending slightly as long as the Pentagon budget is cut by an equal amount.

The spending limits are based on current expectations and will be changed each year to reflect updated technical changes and the performance of the economy.

The difference is that instead of establishing theoretical deficit targets far in advance that invariably were ignored in practice, the new approach would require Congress to follow through on its vow to curb spending by predetermined amounts.

Bush canceled a scheduled trip to New Mexico and Arizona today so that he could monitor progress on the final budget package. Planned appearances in California on Friday remain on his schedule, however.

Agreement on the outlines of the tax compromise came Wednesday morning in a meeting of Foley, Gephardt, Senate Majority Leader George J. Mitchell (D-Me.) and Senate Minority Leader Bob Dole (R-Kan.).

The session was convened after Dole and House Minority Leader Robert H. Michel (R-Ill.) paid a late-night call on Bush on Tuesday to review their options after House Democrats rejected an earlier plan that would have taxed the rich mainly through higher limits on tax deductions.

Lawmakers from California, New York and other high-tax states protested that this approach would be unfair to their residents.

The rate increase linked to the $2,050 personal exemption for the $100,000-and-up income group would amount to a disguised increase in tax rates. The President, however, had said that he would veto any rate increase above 31%, forcing negotiators to seek the roundabout route to accomplish the same thing.

In another move to get Democratic support for a deficit-reduction plan, the White House apparently agreed to reduce cutbacks in Medicare to the House-approved level of about $42 billion, compared to a $49 billion reduction approved by the Senate.

President Bush is expected to endorse the plan before it is presented to the House and Senate as part of a massive deficit-cutting measure including about $142 billion worth of tax increases and almost $300 billion worth of spending reductions.

Even so, Congressional leaders said that they doubt whether more than 40 of the 175 House Republicans will vote for the compromise because of their dislike for higher taxes. As a result, approval of the measure may hinge on the support of 180 of the 258 House Democrats in a roll-call vote less than two weeks before Election Day.

While some Democrats reserved judgment on the latest compromise and others indicated that they could not support it, the majority of those leaving the party’s caucus favored swift approval.

“It’s a moment of truth--you’ve got to go with the leadership,” said Rep. Esteban E. Torres (D-La Puente). Others agreed with Foley that it was time to conclude the hard-fought bargaining that began with budget talks between White House officials and congressional leaders last May.

Rep. Leon E. Panetta (D-Carmel Valley), the House Budget Committee chairman who has played a key role in the talks, said that the agreement in principle sets the outer limits for a budget package and that hard negotiations still lie ahead.