GOP, White House Near Agreement on Budget

White House and Republican congressional negotiators neared agreement Sunday on a five-year budget plan that would include a cigarette tax increase, significant tax cuts for investors, a $500-per-child tax credit and restoration of welfare benefits for certain legal immigrants.

With a major legislative accomplishment within reach, both sides signaled a willingness to compromise on some of the thorniest questions: how taxes on capital gains will be cut and who will qualify for the $500-per-child credit.

Negotiators appeared ready to make the child-care credit available to more low-income families than Republicans had wanted and more upper-income families than Democrats had sought. GOP sources said the emerging compromise would also call for reducing the tax rate on capital gains but not shield inflation-generated gains from taxation.

Top GOP leaders and administration officials met through the weekend and into Sunday night in intense negotiations aimed at nailing down the elusive final details of spending and tax-cut legislation needed to carry out this spring’s bipartisan agreement to balance the federal budget in five years.

“I think we’re very, very close,” House Speaker Newt Gingrich (R-Ga.) said Sunday night. “We’re down to maybe three tiny issues. They’re all manageable.”

President Clinton, in Los Angeles Sunday night for a fund-raiser, said he is confident that a compromise can be reached as soon as today.

“I want us to make this balanced budget agreement tomorrow, [one] that I hope 90% of the Democrats will vote for,” Clinton said in his speech. “This is a very good budget, if we can resolve the remaining problems, if we stay in a positive frame of mind, if we all work in good faith, I think we have an excellent chance to get there.”

Despite Clinton’s optimistic forecast, White House officials remained cautious. “Our hope is we can get it wrapped up. They’re back in talking tomorrow,” White House spokesman Joe Lockhart said Sunday night. “I don’t think we have any clear expectation that tomorrow is the day.”

Republican sources said one of the issues to be resolved was a GOP proposal--strongly opposed by Clinton--that would, in effect, exempt welfare recipients in workfare programs from coverage by federal wage and hour laws.

Republican leaders are pushing to get both the spending and tax-cut bills through the House and Senate before Congress begins a monthlong recess at the end of this week. GOP leaders fear that waiting until September would sap momentum, and they do not want to send lawmakers home to their constituents without major legislative achievements to brag about.

If enacted, the sweeping budget and tax bills will represent the culmination of more than two years of debate on a broad range of issues, including reforming Medicare, expanding health coverage for children, fine-tuning last year’s welfare reform legislation and providing tax cuts for families, investors and college students.

Although the final details of the deal remain to be settled, GOP sources said that major elements have been agreed to.

Early in the day, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said on CBS-TV’s “Face the Nation” that the final package would include an increase in the cigarette tax.

The Senate-passed tax bill called for a 20-cent-a-pack increase in the cigarette tax and used part of the revenue to help finance a $24-billion program to expand children’s health insurance coverage. The House bill included no cigarette tax hike and provided $16 billion for children’s health.

GOP sources said the deal would call for gradually increasing the cigarette tax by 15 cents a pack by 2002, and providing $24 billion for children’s health.

On proposed tax cuts for capital gains, GOP sources said the Republicans would back down from exempting from taxation those capital gains attributable solely to the effects of inflation, a proposal over which Clinton threatened a veto.

For their part, administration officials are expected to go along with cutting the top tax rate on capital gains from 28% to 20%, which is a high GOP priority. “The president understands that is probably the single most important thing to them, and he will take that into account,” Gene Sperling, the president’s top economic advisor, said on CNN’s “Late Edition.”

Negotiators also said the emerging deal would include a compromise on the $500-per-child tax credit.

Republicans had wanted to provide the full credit to couples earning up to $110,000 a year, but not to working-poor families that owe no federal income taxes. Clinton had proposed providing the credit to families earning up to $60,000 annually and to let the working poor use the credit to offset Social Security taxes as well as income taxes.

Sperling indicated that the administration would accept a higher income cutoff. GOP sources said that Republicans would accept more benefits for the working poor.

The key question is how to pay for the expanded benefit. Senate Majority Leader Trent Lott (R.-Miss.) said that compromise, along with all the other tentative deals that had been struck by the end of Saturday, would leave the budget out of balance by $10 billion in the year 2002.

On Medicare, GOP sources said that three controversial elements of the Senate bill--proposals to raise the eligibility age, charge new fees for home health care and charge higher premiums for more affluent beneficiaries--were dead.

On welfare, the GOP gave ground and agreed to restore certain welfare benefits to legal immigrants due to lose them in August under last year’s welfare law. Republican negotiators agreed to allow Supplemental Security Income payments to legal immigrants who were in the U.S. as of Aug. 22, 1996--the day the welfare measure was signed--if they were disabled then or became disabled later.

On the remaining welfare dispute, Republicans say that the nation’s governors should support their proposal to exempt workfare participants from federal labor laws because it gives them more flexibility in running their welfare programs. Clinton is addressing the governors today in Las Vegas at their annual meeting.

Times staff writer Elizabeth Shogren contributed to this story.