House Democrats appeared ready Wednesday to drop their demand for a surtax on the wealthy, opening the way to a deficit-reduction plan acceptable to President Bush and to most members of Congress.
The Democrats' shift appeared also to avert a possible, partial government shutdown at midnight.Several senior Democrats, asking not to be named, said they feared that continued insistence on the surtax could doom the five-month effort to find an acceptable deficit plan. Such failure could also trigger deep cuts in government services less than two weeks before the Nov. 6 elections.
"It's one thing to tax the people's pocketbooks and it's another thing to tax their patience," said Rep. Tom Downey, D-N.Y. "We've done too much of both.'
Senate negotiators were awaiting a new House Democratic proposal that presumably would raise the tax burden on the wealthy by limiting their itemized deductions - not by imposing a new surtax.
Other elements of the deficit-cutting plan would raise the top tax rate for the wealthy, hike the gasoline tax by at least 5 cents a gallon and impose new costs on Medicare recipients. The plan would also cut spending on a variety of programs, including veterans' and agricultural programs.
Oddly, signs that Democrats might be ready to drop the surtax surfaced even as some House Republicans were indicating a possible softening of their own opposition. "It's a possible," House GOP Leader Robert Michel of Illinois said of the surtax after a party caucus. Michel and Senate Republican Leader Bob Dole of Kansas went to the White House Tuesday night for what GOP sources said was an attempt to sell Bush on the surtax. Wednesday, however, Dole spokesman Walter Riker said the visit had been held to discuss "whether they should pull the plug on the whole process" - whether to break off negotiations.
"In Senator Dole's view, the surtax is a dead issue," Riker said. He said Dole believes that the longer negotiations continue, the greater likelihood there is of a package that relies more on tax increases and less on spending restraint.
The dispute over precisely how to put new taxes on the rich has become the most difficult issue in the effort by lawmakers and the White House to pare $250 billion from the budget deficit over five years.
Added to a package of cuts in military spending and interest expenses, the deficit would fall by a total of $500 billion over that period.
Under the Democrats' proposal, a surtax would hit people earning more than $300,000 annually. Democrats had been demanding that the surtax be aimed at people earning more than $1 million, but lowering that threshold would raise more money because it would hit more people. This would allow budget writers to reduce savings in other parts of the deficit-cutting plan.
Never decided was the amount of the tax, although a range of 5 percent to 10 percent had seemed the most likely.
Republicans have preferred limiting deductions instead of a surtax, but that alternative has been supported by only about half the House's majority Democrats. With most Republicans ready to vote against the budget in any case, there would not be enough support for the measure to be passed by the House.
"We are trying to keep negotiations going," House Budget Committee Chairman Leon Panetta, D-Calif., told reporters Tuesday night after a long, fruitless day. "But the hour is late and we still don't have an agreement."
Proceeds from higher taxes on the wealthy would be used to moderate proposed increases in the gasoline tax - about five cents rather than the nine cents passed by the Senate - and in patients' costs of Medicare.