Budget negotiators, after four months of hard bargaining, appeared to be on the verge of agreeing to a package of tax increases and spending cuts to slash the deficit by $500 billion over five years.
"We're going to get a deal," said one optimistic source close to the White House and congressional budget talks, which began May 15.Negotiators worked well beyond midnight Saturday and were considering an all-night session, hoping to narrow remaining differences, mostly on taxes and budget process.
No final deal was expected to be announced before at least midmorning Sunday, since a subgroup handling one of the remaining big sticking points - budget process reform and enforcement of spending caps in later years - recessed for the night and was not to meet until Sunday morning.
White House press secretary Marlin Fitzwater told reporters there was a good chance that President Bush would interrupt a three-day New York trip and fly to Washington Sunday to appear with congressional leaders at the White House to announce a final deal and to throw his support behind it.
Negotiators are fighting a midnight Sunday deadline to come up with a package of tax increases and spending cuts that would reduce the deficit by $50 billion in the new fiscal year beginning Monday and by $500 billion over five years. Failure to do so would trigger up to $105.7 billion in automatic spending cuts, split between defense and domestic programs.
Without a deal and subsequent passage of stalled spending bills, the government would run out of money and could shut down Monday.
While figures could change, the package is epxected to include an 8 cent-a-gallon hike in gasoline taxes and other energy taxes, higher taxes on alcoholic beveragesand cigarettes, sharply lower defense spending over five years, big cuts in Medicare and a new 10 percent luxury tax on expensive cars, boats, furs, jewelry and electronic equipment.
The agreement is not expected to include lower capital gains taxes, sought by President Bush, or higher income tax rates on the rich, sought by Democrats as the price the GOP had to pay to get a capital gains cut.
And in a change that could anger many elderly people, the package also includes higher taxes on Social Security benefits for single beneficiaries making $25,000 a year and couples making $32,000 a year.
People in that category now have their Social Security benefits taxed at 50 percent. Under the plan expected to be approved by budget negotiators, that would go up to about 70 percent, sources familiar with the discussions said.
Wealthier senior citizens mounted an intense and successful lobbying campaign last year to get Congress to scrap the landmark catastrophic health insurance law, complaining about the increased costs of expanded health benefits.
The deal was made possible, in part, when Republicans dropped their demand for a big cut in capital gains taxes on profits from the sale of assets. Republicans also ditched their fall-back position of adjusting capital gains taxes to compensate for the bite inflation takes from any gain over the years.