President Bush yesterday jettisoned the "no new taxes" pledge that was at the center of his 1988 presidential campaign, saying that "tax revenue increases" must be included in an overall package to reduce the federal budget deficit.

Bush's statement marked the most significant policy reversal of his presidency and represents a political gamble by the president, who has been warned repeatedly that Republicans will lose their most effective campaign weapon if he agrees to new taxes as part of a budget deal.

In return for his explicit abandonment of the no-tax pledge, Bush won approval from Democratic congressional leaders for a package that includes cuts in domestic spending and in costly entitlement programs.

"It is clear to me that both the size of the deficit problem and the need for a package that can be enacted require all of the following: entitlement and mandatory program reform; tax revenue increases; growth incentives; discretionary spending reductions; orderly reductions in defense expenditures; and budget process reform," Bush said in the statement. He added that the "bipartisan {congressional} leadership agree with me on these points."

The three-paragraph statement followed a two-hour breakfast meeting at the White House and was designed to jump-start the stalled budget negotiations. The breakfast was called by the president after a series of private meetings that began late last week involving Office of Management and Budget Director Richard G. Darman, Treasury Secretary Nicholas F. Brady and top congressional Democrats.

The breakfast included House Speaker Thomas S. Foley (D-Wash.), Senate Majority Leader George J. Mitchell (D-Maine), House Majority Leader Richard A. Gephardt (D-Mo.), Senate Minority Leader Robert J. Dole (R-Kan.) and House Minority Leader Robert H. Michel (R-Ill.).

The administration contingent included Bush, Brady, Darman and White House Chief of Staff John H. Sununu.

With the country's economy already growing very slowly, a number of economists warned after yesterday's announcement that the restraining effect of tax increases and fewer federal purchases could tip the nation into a recession, unless interest rates were to drop quickly and substantially. {Details on Page H1.}

Democratic congressional leaders who attended the breakfast applauded Bush's statement but refused to gloat over the tax issue.

"It's not a matter of vindication," Foley said. "We are not here looking for political advantage. We're trying to go forward with the very difficult but important undertaking of dealing with the deficit with a minimum of political posturing on anybody's part."

But Foley made it clear the Democrats now believe that a key campaign weapon for the Republicans has been neutralized. "I think someone who is complaining about taxes being raised in the budget summit will have to complain against both parties and the president, if they wish to make that kind of complaint," he said.

But the statement caught Republicans by surprise and they bombarded White House officials with their anger. Rep. Robert S. Walker (R-Pa.) collected 90 signatures from fellow House Republicans on a letter to Bush saying, "We are stunned by your announcement." The GOP lawmakers vowed to vote against "a budget package that increases tax rates for the American people."

Across the Capitol, Sens. Mitch McConnell (R-Ky.) and Dan Coats (R-Ind.), who both face election challenges in November, collected nearly two dozen signatures on a letter to Bush pledging to support the 1988 GOP platform and said they would support a presidential veto of any new taxes.

Hoping to calm jittery Republicans, Sununu was dispatched to Capitol Hill to attend the weekly luncheon of Republican senators. He and other White House officials attempted to play down the significance of Bush's statement on taxes, saying it was nothing new. They argued, with only modest success, that yesterday's formulation was no more than a reiteration of the administration's position at the beginning of the budget talks, in which Bush said everything was "on the table."

But Sununu's efforts drew a sharp rejoinder from Mitchell by the end of the day. Saying that all the participants at the morning breakfast understood the statement to be "new and significant," Mitchell said: "Any attempts by White House officials or other Republicans to describe this statement otherwise are totally inconsistent with what occurred today and with what the statement itself says."

Bush etched his opposition to new taxes into public consciousness in his acceptance speech at the 1988 Republican convention in New Orleans with the memorable line: "Read my lips: no new taxes."

Asked yesterday whether Bush could have been elected by talking about raising taxes, White House press secretary Marlin Fitzwater said, "We feel he said the right thing then and he's saying the right thing now . . . . Everything we said was true then and it's true now. No regrets, no backing off."

Asked more directly whether he would agree that Bush had now broken the pledge, Fitzwater replied: "No. Are you crazy?"

In Boston, however, Massachusetts Gov. Michael S. Dukakis bluntly criticized the man who beat him in the 1988 campaign. "I told the truth and I paid the price," Dukakis said. "Mr. Bush did not and we're all now going to have to pay the price for that."

Fitzwater said the administration hopes the budget negotiators can reach agreement on a package by the time Congress breaks for its August recess. But he and top Democrats refused to discuss specific tax increases or spending cuts that might be included in the package, saying the details would be worked out by the negotiators.

"No specific measures were discussed and there is no agreement with respect to any specific measures," Mitchell said.

Fitzwater said that the president's statement represented "a turning point" in the negotiations and that it is likely to get the talks moving again. With Bush now publicly saying that new taxes are needed, Democrats believe they no longer have to worry about who will get blamed politically.

"All tactical ploys from any side and all sides are put to rest," said Sen. Wyche Fowler (D-Ga.), the Senate Democratic leadership's representative on the bargaining team. "To get to the solution, the president had to cure a political problem of his own making."

But some Republicans argued yesterday that Bush's statement was a bold move that would pay greater dividends for the president than the Democrats.

Steve Bell, a former GOP staff director of the Senate Budget Committee who heads the Washington office of Salomon Brothers, said Bush had implicitly abandoned his tax pledge at the beginning of the talks.

He said Bush's statement outlining the elements of a budget package represented "a strategic effort to focus on what's really been holding up the talks, which is not taxes but domestic spending."

The Bush administration's most recent estimate of next year's deficit is $159 billion, not including the costs of the saving-and-loan scandal cleanup. When those funds are added, the projection rises to between $200 billion and $227 billion. In January the administration set the deficit at $100.5 billion, not including the savings-and-loan money.

To avoid automatic, across-the-board cuts, the budget negotiators must bring the projected deficit down close to the $64 billion target contained in the Gramm-Rudman-Hollings budget act, or alter the law's targets.

Even though Bush has said that taxes ought to be part of the package, there remains the difficult task of choosing which taxes to raise.

Personal income tax rates are the most difficult to talk about or touch. Bush and GOP lawmakers fiercely oppose raising personal income tax rates. Gasoline taxes are not likely to muster enough support in an election year and a value-added tax is not politically feasible.

More likely are a variety of excise tax increases. Taxes on beer and wine, for instance, have not changed since 1951 and the inflation-adjusted tax on a package of cigarettes is about half of what it was 39 years ago.

The Bush statement also included an implicit reference -- "growth incentives" -- to a capital gains tax cut as part of a deficit reduction package, a proposal Congress blocked last year.

Similarly, making cuts in programs where spending is set by formula in permanent law, the so-called entitlements, are likely to be politically difficult. Cost-of-living adjustments for Social Security and federal and military pension programs are regarded as too politically sensitive to be touched. More likely targets are Medicare and farm programs.

Bush's statement came after several days of maneuvering and meetings between administration officials and Democratic leaders in the face of near-unanimous agreement that the budget talks were dead without a new presidential move.

With Bush's knowledge, officials said, Darman and Brady began a series of meetings with key Democrats to gauge what it would take to, as one official put it, "get the talks off the dime."

The two had breakfast last Thursday morning with Senate Finance Committee Chairman Lloyd Bentsen and House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.). The same day, the two held lengthy talks with Senate Budget Committee Chairman Jim Sasser (D-Tenn.) and Fowler. Darman and Gephardt had separate discussions.

According to congressional officials, the Democratic message was essentially the same: the new budget the White House tabled last Wednesday, which was similar to their original proposal containing no new revenues and deeper domestic cuts, was not considered a serious proposal.

Officials said Sununu, who was out of town at the end of last week, was not involved in the discussions because of the distrust with which he is viewed on Capitol Hill. One official said, "There aren't exactly a lot of Democrats with whom Sununu has a good, trusting relationship." But an official insisted that Sununu did not resist the statement because "it's what the president wanted."

An adviser to Bush said, "What really happened was we had five or six weeks and nothing happened. And Bush said, 'Boys, let's stop phase one. Let's get on with it. We knew we'd come to this when we agreed to no preconditions. I'll take the lead, if you'll agree with it, but let's get on with it."

Bush has been told by senior advisers as recently as last week that his fate is tied far more closely to that of the economy than it is "to one campaign promise that voters did not believe anyway," said one GOP official.

Staff writer Ann Devroy contributed to this report.