Budget Deal Sealed as the Battle Lines Form in Congress : Economy: Clinton will tout the compromise bill in a speech tonight. Plan would cut the deficit by $496 billion over five years. House and Senate to vote by week’s end.

Adding last-minute sweeteners to woo crucial Senate votes, Democratic leaders sealed a budget deal Monday that they said would lower the deficit by $496 billion over the next five years to carry out President Clinton’s economic program.

Senate-House negotiators agreed to soften a tax bite on Social Security recipients as they wrapped up a package of politically painful tax increases and spending cuts, setting the stage for showdown battles in the House and Senate later this week on a measure viewed as crucial to the Clinton presidency.

Democratic leaders predicted that the plan, including massive tax boosts for the wealthy and a gasoline tax increase of 4.3 cents a gallon that will affect all Americans, would win approval in both chambers, despite unanimous Republican opposition and defections by many Democrats.

At the White House, Clinton prepared to deliver a nationally televised address at 5 p.m. PDT today to drum up support, saying that he will argue: “It’s time to move. To delay this program is a great mistake. All it will do is paralyze the government, paralyze the financial markets and leave us with uncertainty.”

As they have throughout the budget process, Republicans expressed vigorous opposition. Senate Minority Leader Bob Dole (R-Kan.) denounced the measure as “the largest tax increase in the history of the world” and called for its defeat.

White House officials acknowledged that the outcome might be decided by a single vote in the Senate and only a handful in the House. The House is expected to vote Thursday and the Senate is scheduled to act on Friday.

Full details of the agreement were being withheld until today, although the major provisions were made known previously and only a relatively few last-minute changes were not disclosed.

Congressional aides said that the package would restrain the growth of spending by $252 billion and raise taxes by $244 billion in five years, meeting demands for more spending reductions than revenue increases. Republicans, however, dismissed the figures as misleading and said that new taxes are at least twice as great as spending cuts.

Democratic leaders said that more than 75% of the tax increases would be imposed on incomes above $200,000 a year. Most of the new revenues would come from raising the top-bracket rate from 31% to 36% on taxable incomes, after deductions and exemptions, of $115,000 for individuals and $140,000 for couples. A new 10% surtax would hit taxable income above $250,000, producing a new top rate of 39.6%.

In afternoon press conferences, Republicans and Democratic leaders clashed over the bill’s effect on those small businesses whose owners choose to pay income taxes as individuals, not corporations.

Dole said that the increase in the top-bracket rate to 36%, retroactive to Jan. 1, and other business tax increases would have a devastating effect, raising the small-business tax bill 30%. He also said that by the time the bill becomes law, businesses would have just four months left in the year to accumulate the total amount they need for the new taxes.

White House officials, however, said that only 4% of small-business owners who pay taxes as individuals would be affected because the rest of them do not have incomes high enough to be affected. House Majority Leader Richard A. Gephardt (D-Mo.) said that many such firms would pay lower taxes because of a provision allowing fast write-offs on equipment purchases of as much as $17,500 a year.

Incentives for business investment in research and development, job training and low-income housing were included, as were special provisions to benefit real estate professionals.

Leon E. Panetta, director of the Office of Management and Budget, told reporters that Clinton’s proposed tax on the Social Security benefits of better-off retirees was modified so that it would affect only one in eight people on the rolls rather than one in four.

Under the final version, single Social Security recipients with incomes of $34,000, including half of their benefits, would pay tax on a percentage of their benefits under a sliding scale that tops out at 85%. The threshold for couples would be $44,000.

This change--from previous levels of $32,000 and $40,000, respectively--was designed to win support for the entire bill from Sen. Dennis DeConcini (D-Ariz.), who voted against an earlier version of the measure but whose approval now could offset the loss of Sen. David L. Boren (D-Okla.), who has said that he will oppose the measure--although he voted for the Senate version.

DeConcini, however, made no comment on the apparent concession. He previously had said that he was leaning against the compromise plan emerging from the Senate-House conference.

The Senate voted, 50 to 49, in June for the first version of the bill, with Vice President Al Gore casting a tie-breaking vote.

DeConcini also was said to be happy about Clinton’s reported promise to create a “deficit-reduction trust fund” by executive order as a means of assuring that funds raised by new taxes will be used to lower red-ink spending rather than being spent on other federal programs.

Clinton also kept up his hard sell of the budget package by persuading a group of Californians, including State Assembly Speaker Willie Brown, other elected officials and business leaders, to drum up support in Congress for the plan.

The group was invited to the White House for a two-hour presentation on the budget by the President and several of his Cabinet members. Then, as if on cue, the Californians appeared outside the White House to declare unanimous backing for the Clinton program.

Most of them said that they would contact Sen. Dianne Feinstein (D-Calif.) as well as undecided members of the House from California to lobby for the bill.

“I don’t think we can take the risk of this not going through,” said Barry Sterling, owner of Iron Horse vineyards in Sebastopol.

Most of the spending restraint under the bill would affect Medicare, Medicaid and the defense budget. The compromise calls for reducing Medicare outlays by $56 billion, with another $7-billion cut in the Medicaid program for the poor.

On the other hand, the legislation provides an additional $21 billion of earned income credits to reduce the tax burden or provide government payments for working-poor families with children. Food stamp outlays also would be raised by $2.7 billion.

Another $2.5 billion in tax breaks would be provided to encourage business investment and hiring in 10 depressed urban areas, probably including part of Los Angeles, to be designated as “empowerment zones.” Those areas also would benefit from another $1 billion in direct spending.

“I see no reason why a liberal Democrat should vote against this proposal,” said Rep. Henry Waxman (D-Los Angeles). “I didn’t get everything I wanted (but) I feel comfortable.”

“We are confident this will command majorities in the House of Representatives and the U.S. Senate,” Speaker Thomas S. Foley (D-Wash.) told reporters. Senate Majority Leader George J. Mitchell (D-Me.) insisted: “We have the votes--we will have the votes” on Friday, but he declined to say who he was counting on to avoid a politically humiliating defeat for the President.

Sen. Daniel Patrick Moynihan (D-N.Y.), chairman of the Senate Finance Committee, readily acknowledged that Monday’s last-minute decisions were designed to attract votes for the troubled package. One target was Sen. Richard H. Bryan (D-Nev.), who was seeking to protect Nevada’s gaming, hotel and restaurant industries that would be affected by a provision to lower deductibility of business meals and entertainment from the current 80% to 50%.

While negotiators considered for a time raising the figure to 60%, they decided that it would lose too much revenue and bring down the deficit-reduction target too far below the $500-billion goal that Clinton had established. But another provision, giving restaurant and hotel operators an additional tax credit in relation to payroll taxes paid on tips given to employees, was reportedly added to the bill.