Mayor Marion Barry, unveiling a fiscal 1989 budget that calls for expanded city services in the face of rising costs, yesterday proposed a tax increase that would repeal two income tax breaks now in effect and impose a 5 percent surcharge on individual taxpayers next year.

The surcharge, part of a two-year, $69 million tax package, would be applied only in 1989 and would cost from as little as a few dollars for lower-income persons to more than $300 for a $100,000-a-year individual with a family of four.

The repeal of the tax breaks would add $11 to the 1988 tax bill of a wage-earner with a $20,000 gross income and a family of four, and would add about $200 for a similar taxpayer who earns $75,000.

The targeted tax breaks, which were designed to prevent a windfall from the 1987 revision of the federal tax code, reduce the city's top income tax rate from 10 percent to 9.5 percent and increase the personal exemption from $885 to $1,025 this year. The mayor initially opposed the breaks last year, and approved them only after a fight with key members of the D.C. Council.

"I believe that the modest tax changes I am proposing are but a small price to pay for the {city's} many services," Barry said during a news conference in which he outlined a $2.8 billion budget that contains a broad array of social service and public safety spending initiatives focusing on drug abuse, crime and job training for youths.

" . . . I'm sure the people will show their humanity, not their hostility," Barry said.

Barry's budget for the fiscal year beginning Oct. 1 represents an 8.5 percent increase over the current year spending plan -- somewhat higher than the 7 percent rise of the year before. The increase compares with a projected 1988 inflation rate of 4.5 percent, rising to 5 percent in 1989.

The mayor and his aides cited rising social service costs -- programs for the homeless, for example, nearly doubled to $21 million -- as factors that are driving budget increases.

Also forcing higher spending, they said, are court-ordered mandates to improve prisons, homes for youths and health services for the indigent.

Influential members of the council, which last year twice rejected efforts by the mayor to raise income taxes, reacted coolly to Barry's latest proposal.

Council member John A. Wilson (D-Ward 2), chairman of the Finance and Revenue Committee who helped lead the fight against higher taxes last year, issued a statement yesterday in which he said "a correct balance between spending and taxing will not be an easy one to achieve."

Wilson, who like several council members is up for reelection this year, previously has said he generally opposes new taxes.

Council Chairman David A. Clarke said he hopes the council can "minimize, if not eliminate, the proposed tax increases." Under city law, the council committees have 50 days in which to hold detailed budget hearings and vote on Barry's proposals. The hearings begin Feb. 16.

"I'm not going to vote to raise people's income taxes to provide more staff for the mayor," said council member Betty Ann Kane (D-At Large), chairman of the Government Operations Committee, which oversees the mayor's office, among other agencies. Kane's office said Barry's budget includes 13 new staff positions projected to cost $567,000.

Barry proposed a school budget of $448 million, an increase of $26.5 million over the current year, but less than the $481 million sought by the D.C. Board of Education.

In an unusual move, Barry yesterday presented both his 1989 budget and the midyear revisions in the current 1988 budget that normally are not submitted until May.

Aides to the mayor said the two-part budget offensive was designed to build support for Barry's tax policies by showing that his administration is cutting spending now in some management areas and is trying to address pressing social needs.

Barry said that the District in the current year faces a $134 million shortfall between available revenue and planned spending.

Barry said his staff reduced that amount by eliminating about $76 million in spending, but he did not detail how those savings were made. The mayor said the remainder of the fiscal gap would be made up by his income tax proposals, which would amount to $18 million in new revenue, and natural revenue growth from the area economy.

Barry acknowledged yesterday that he still has not provided funding required by Congress to make a $20 million reduction in the city's long-term accumulated deficit, which is now $204 million. Barry said there is only approximately $800,000 in the budget for that purpose but did not rule out making other budget changes to reach the figure mandated by Congress.

Of the $2.8 billion in budgeted spending for next year, 48 percent is needed to pay the salaries and fringe benefits of about 36,000 government employees, according to budget documents.

That "operating budget," however, does not include an additional $500 million the city receives mostly from federal grants. The $500 million funds federal programs as well as pays for the hiring of an additional 5,593 D.C. employees to carry out those programs. The District also receives about $115 million from its lottery operations.

Considered together, the city's actual budget for the coming year would be $3.3 billion with 44,480 employees.

The annual spending blueprint, reflecting the competition between pressing needs and hard-to-avoid costs, calls for roughly equal spending for public safety and social services.

Police, fire, courts and corrections expenditures for the current year total about $655 million and are scheduled to rise to $741 million in 1989 under Barry's plan, an increase of $86 million. At the same time, costs of social services would rise from $695 million during the current year to $741 million next year, an increase of only $46 million, or half the increase for public safety.

Spending in the social services area would rise for some programs and decline for others.

Following up on priorities spelled out in his recent State of the District address, Barry included major new allocations for youth programs, in response to the rise in drug abuse and court consent decrees requiring more community-based residential facilities for young people.

Despite the demand for low-income housing, the city's housing agency would suffer a budget cut of $1.7 million. The decrease resulted in part because the city did not spend all the funds available in the current year.

On health issues, the mayor asked for $2.8 million to fund a newly established Office of AIDS Activities, which would provide community-based services, emergency drug assistance and other help for AIDS patients.

Barry, meanwhile, is asking for a reduction of about $2.2 million in the Medicaid budget, which goes to health care for poor people, for a proposed budget of $144 million.

Officials said the savings can be achieved through a lower caseload, changes in reimbursement policies and measures to cut the costs of prescription drugs. Medicaid officials said there will be no change in eligibility requirements or any reduction in current benefits levels.

The mayor's spending plan envisions overall increases that are comparable to those proposed by Maryland Gov. William Donald Schaefer, who has asked for an 8.5 percent increase over the previous year. In Virginia, Gov. Gerald L. Baliles has asked the General Assembly to approve a 14.4 percent rise in spending in the state's two-year budget.

Barry's $69 million tax increase would include:

$22 million raised by the surtax in 1989.

$26.6 million generated by returning the maximum income tax rate from 9.5 percent to 10 percent on income of $20,000 or more. $14 million raised by reducing the personal income tax exemption from $1,025 to $885.

$7 million raised over two years by eliminating what officials said is a loophole that allows some property owners to escape paying transfer and deed recording fees.

Staff writers Marcia Slacum Greene and Michael Abramowitz contributed to this report.