Gorbachev, Yeltsin Hammer Out Tax Accord, Clear Way for Treaty : Agreement: The country’s two most powerful leaders break a deadlock in marathon negotiations.

As President Bush slept, Soviet President Mikhail S. Gorbachev and Russian leader Boris N. Yeltsin huddled until 3 a.m. Tuesday for a summit of their own. It cleared away the last major dispute in their long, acrimonious fight over power-sharing, Russian officials said.

“Today, there are no obstacles to Russia signing the Union Treaty,” Pavel I. Voshchanov, chief of the Russian Federation’s government press center, declared in summarizing what stands to be a watershed episode in the struggle by Gorbachev, Yeltsin and leaders of other Soviet republics to forge a new federal system to ensure a political future for the Soviet Union.

In marathon talks that began at 7:30 p.m. Monday and dragged on for 7 1/2 hours, this country’s two most powerful politicians, meeting at Gorbachev’s presidential retreat outside Moscow, finally broke their longstanding deadlock over taxation. That was the sole remaining objection Yeltsin had to Gorbachev’s blueprint, the Union Treaty, for redistributing power in the Soviet Union.

According to the Russian Information Agency and officials of the republic that Yeltsin heads, Gorbachev, who had been demanding the right for the central Soviet government to tax citizens of the constituent republics directly, accepted a compromise floated by the Russian president, who fears that allowing the Kremlin to tax as it sees fit would hamstring both the authority and survival of local governments.

Russian sources said Yeltsin proposed and Gorbachev accepted a “one-channel” system of taxation. It would permit authorities of Russia and other republics to levy and collect taxes on their territory. But it would also obligate them to pay a fixed percentage of their income into the central government’s coffers.

Meeting later Tuesday with Bush, who arrived in Moscow on Monday night as the Gorbachev-Yeltsin talks were well under way, Yeltsin said that “from the Russian side, there is no obstacle to concluding the Union Treaty--tomorrow, if you like,” officials in his entourage reported.

Last week, Gorbachev gathered the leaders and representatives of constituent Soviet republics around him at the Novo-Ogaryovo estate and, after 12 hours, emerged weary but happy to proclaim that a draft text of the treaty designed to keep this ethnically splintered nation together was ready for signing.

But negotiations continued because the leaders then could not reach a conclusive agreement on the tax system, which will be of make-or-break significance in determining whether the republics have the means to pursue independent policies.

Voshchanov said that, under the compromise reached by Gorbachev and Yeltsin, Russia--the biggest, richest and most populous of the Soviet republics--will pay a fixed rate of its tax revenue into the national budget. The rate will be determined by the type of government programs to be funded and economic conditions.

Russia, source of the main trove of Soviet diamonds, gold, oil and natural gas, contributes 70% of what Moscow-based authorities collect from the republics. In January, Yeltsin showed he would no longer allow the central government to make such claims on the Russian economy by withholding the ruble equivalent of $50 billion from his republic’s Kremlin contribution.

In their overnight talks, Yeltsin and Gorbachev demonstrated a new flexibility: The Soviet leader dropped his insistence that the national government be allowed to tax directly and Yeltsin had previously sought to limit Russia’s contribution to a fixed lump sum, rather than providing for an increase in the event of a slide in the ruble’s buying power.

Under the new treaty, which Yeltsin told a U.S. television interviewer would be signed in August, republics in the renamed Union of Sovereign Soviet Republics (as opposed to the Union of Soviet Socialist Republics) will be declared fully sovereign. But they will delegate some powers in key domains such as foreign policy and national security to the central government in Moscow.

In stark contrast to the last seven decades of Soviet rule, and even to the despotic habits of the czars, individual republics would be allowed to control their own resources and establish their own policies in the social and economic realms.

But certain core functions are reserved for the national government, including the coining of a single currency and the maintenance of a unified economy. Nationalists in many of the outlying republics have objected vociferously.

Six of the current republics--Latvia, Lithuania, Estonia, Moldova, Armenia and Georgia--refused to even take part in the negotiations on the Union Treaty; they have been invited by Gorbachev to sign it anyway.

Reaction from leaders of the other republics to the Yeltsin-Gorbachev agreement was not immediately available. Russian officials said Nursultan Nazarbayev, president of Kazakhstan, attended the negotiating session.

Gorbachev allies have been pointing with alarm to the position adopted on the Union Treaty by the Ukraine, the most important of the Soviet republics after Russia, which Bush will visit on Thursday. Ukrainian leaders have made statements supporting the treaty. But the republic’s legislature has postponed any discussion on the pact until the autumn and pro-independence forces in the breadbasket, industry-rich republic are on the upswing.

Russian officials said Yeltsin carried other proposals to Gorbachev but refused to divulge details. Russian television reported that Gorbachev, in the talks, raised the issue of Yeltsin’s recent decree banning party cells from Russian workplaces, a measure intended to circumscribe the influence of the Communist Party that Gorbachev heads.