Congressional leaders, in virtual agreement on major tax issues, sought spending compromises Thursday as they neared completion of a deficit-reduction plan that apparently has the support of a majority of lawmakers and President Bush.

"Do not despair; the end is in sight," said Rep. Silvio Conte, R-Mass., as the House and Senate inched toward final adjournment of the 101st Congress.Bush early Thursday morning averted a partial government shutdown by signing a temporary spending measure that will keep operations going until midnight Saturday.

Assuming no unexpected hitch, final House and Senate votes on the deficit-reduction package could come Friday. That would close another chapter in a long-running fight between the executive and legislative branches and remove the major obstacle to adjournment - barely a week before the Nov. 6 elections.

"We still have a lot of work to do," Sen. Lloyd Bentsen, D-Texas, chairman of the Senate Finance Committee, told reporters as leaders began another series of closed meetings.

The budget plan will mean higher taxes on tobacco, alcoholic beverages, airline tickets, cars, boats, furs and jewelry. A gasoline tax increase of 5 or 6 cents a gallon is likely and retirees probably will have to pay more for Medicare coverage.

Several changes whose details were still being negotiated will mean heftier income taxes on those with higher incomes, especially those above the $100,000-a-year range. But a provision that would have raised taxes on lower- and middle-income Americans by forgoing next year's scheduled inflation adjustment in income taxes was dropped.

Leaders of both parties embraced broad outlines of the deficit-reduction compromise Wednesday after Democrats dropped demands that it include a special surtax on the rich. Bush indicated he was pleased with progress being made, but top lawmakers cautioned they had not agreed on a final product.

"The conception seems to be pretty much on the right track," said Sen. Pete Domenici of New Mexico, senior Republican on the Senate Budget Committee. "It hasn't been refined."

Negotiators said sizable problems remained to be worked out on spending for Medicare, Medicaid and farm programs.

The talks have produced preliminary agreement on major tax issues, including:

- Raising the top tax rate on the wealthiest people to 31 percent from the present 28 percent. The 33 percent rate paid by upper-middle-income people on some of their earnings would drop to 31 percent.

- Phasing out the $2,050 personal exemptions for single people with taxable incomes of more than $100,000 and couples above $150,000.

- Permitting writing off only 97 percent of otherwise allowable deductions against any portion of adjusted gross income above $100,000 a year.

- Setting a maximum tax rate of 28 percent on capital gains, which are profits from the sale of investments. That would mean a tax cut for those whose gains are now taxed at 33 percent but would fall far short of the general capital-gains tax cut that Bush has demanded.

The bill that contains tax increases and restraints on Medicare and other mandatory spending would cut the deficit by about $250 billion over the next five years. Another $250 billion would come principally from scaling back military spending and cutting interest expenses by reducing government borrowing.

Even with that package, government spending is expected to total $1.2 trillion during the 12 months that end next Sept. 30 and the deficit still would be a record $250 billion. The bill envisions that today's federal debt of $3 trillion-plus will soar to $5 trillion by the end of the five-year period.

The emerging compromise has bipartisan support in the Senate and backing from a clear majority of House Democrats. However, vote-counters say House Republican Leader Robert Michel of Illinois will be lucky to get 50 of the 176 GOP members behind the plan, despite Bush's pleas. Most House Republicans adamantly oppose any tax increase.


(Additional information)

Can't say no to Bo

President Bush took a break from the budget battles Thursday to escort actress Bo Derek on a tour of the White House grounds. The actress was in town for the International Horse Show and wanted to see the White House, said Bush press spokeswoman Alixe Glen.