Bush administration officials and congressional Republicans yesterday offered to raise the income tax rate on the wealthiest Americans as part of a tax package without demanding a cut in the capital gains rate in return, according to administration officials and a GOP congressional leader.
The move seemed designed to defuse Democratic charges, repeated throughout the months-long budget negotiations, that the Republicans are the party of the rich.
"There is some feeling that if we don't flatten the bubble, it will be right back again next year," said Senate Minority Leader Robert J. Dole (R-Kan.), referring to the anomaly that creates a top marginal tax rate of 33 percent for upper-middle-income earners and 28 percent for the richest Americans.
Talks adjourned until today after Democrats offered a counterproposal, details of which were not immediately clear.
The Republican proposal would have created a uniform top income tax rate of 31 percent, which would lower the 33 percent rate on upper-middle-income earners and raise the 28 percent rate for Americans with the highest incomes.
The GOP proposal also would have phased in limits on deductions, which would have begun to affect people with incomes of $85,000 a year and would have reduced deductions most for people with incomes of more than $1 million. In addition, the current 9-cents-a-gallon federal gasoline tax would have increased by less than the 9 1/2 cents proposed in a plan passed last week by the Senate.
Much of what concerned congressional leaders involved in the talks was whether or not a new package could win both congressional and administration approval.
"I think the people in that room could have settled it in three or four hours," said House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) after emerging last night from talks among congressional leaders. But he said that "there are things we can't pass in the House and there are things we can't pass in the Senate. . . . We can't deliver the way we used to."
Although they did not meet face to face with Democrats, White House budget director Richard G. Darman, Chief of Staff John H. Sununu and Treasury Secretary Nicholas F. Brady huddled at the Capitol with Republican leaders yesterday.
The tax talks took place as lawmakers tried to do in days what they ordinarily would do in weeks of hearings, debate and negotiation: fashion a compromise budget acceptable to Congress and the White House.
"You had five months of agony and tradeoffs," said House Budget Committee Chairman Leon E. Panetta (D-Calif.) of the prolonged negotiations that took place over the summer between the White House and Congress. Now, Congress is trying to duplicate the budget-summit talks in a few days.
Darman predicted that the final budget agreement would resemble the one worked out by the budget-summit bargainers at the end of September. "Many members said they didn't want to be dictated to by their leaders," Darman said last week. "They may come right back to something similar to what their leaders did."
In many areas, including agriculture, veterans' affairs and the budget process, Senate and House bargainers ironed out differences between the two chambers and adopted variations of measures agreed to by the summit.
Some Bush administration officials said they took this as evidence the summit served a purpose despite the Oct. 5 defeat of the agreement by the House. Brady said the summit "did something that Congress couldn't do for itself."
But congressional leaders interpreted the progress in the past days as a vindication of the legislative process. "In these final days of this grueling year, members of Congress from both parties have quietly repudiated the charge that we cannot do our work," said Senate Budget Committee Chairman Jim Sasser (D-Tenn.).
In the crucial area of taxes, congressional bargainers also discussed a variation of the House plan to place a 10 percent surtax on the income of Americans who earn $1 million or more a year. The negotiators were considering a threshold of $300,000, which would generate enough revenue to cut the Senate's proposed reductions in projected Medicare spending and trim its proposed increase in the gasoline tax, negotiators said.
An administration aide said yesterday that erasing the anomoly in income tax rates, which now are 28 percent for the wealthiest earners but 33 percent for upper-middle-income earners, would cut taxes for 5 million people, raise taxes for 700,000 and generate about $7 billion in revenue.
Some Democrats said that if the talks fail to get rid of the so-called income tax "bubble," it will serve as a useful political tool. "That will take us right into '92," said Rep. Barney Frank (D-Mass.). A House Democratic strategist said, "The bubble's our best friend right now."
Administration officials were not happy about the proposed surtax on wealthy taxpayers. "In effect, it's a fourth rate," said one administration aide. But Democrats like the measure because it places the administration in the awkward position of standing up for millionaires.
Administration officials entered the negotiations divided over how difficult it would be to forge an acceptable compromise. Darman predicted early in the week that the package would resemble the agreement reached in the budget summit talks held in September. "This thing lost by only 39 votes. All you've got to do is bring back some of those votes," he said.
Meanwhile, work continued on other provisions of the massive deficit-cutting bill. Bargainers reached agreement over a child-care package by making explicit how states could use federal grants under the program. House Education and Labor Committee Chairman Augustus F. Hawkins (D-Calif.) wanted to make sure money went for the care of children whose parents both work outside the home.
Staff writers John E. Yang and Don Phillips contributed to this report.