Congressional and White House negotiators were considering modifications in Social Security benefits Thursday night as they zeroed in on an overall budget agreement, officials close to the talks said.
Top congressional officials and White House aides, who have been seeking a deficit-reduction agreement for a week, were optimistic that they could seal a pact before Monday and avert $100 billion in automatic budget cuts that would cripple the federal government.
The conferees met into the early hours of Friday but did not complete the package before adjourning for the night. They were scheduled to resume their talks at midday.
The proposals to modify Social Security were being made as part of a large deficit-reduction package aimed at saving $50 billion in fiscal 1991, which begins Monday, and $500 billion over the next five years. Expected to be included in the package were a variety of tax increases and spending cuts in government programs.
Also as part of the deal, deficit-reduction targets under the Gramm-Rudman balanced-budget law would be modified.
At the high-level deficit-reduction discussions, which followed months of a White House-congressional budget ”summit,” Republicans had proposed delaying until next April Social Security cost-of-living increases scheduled for January, officials said. Democrats had countered with a proposal to tax a higher percentage of Social Security benefits paid to the more affluent.
Congressional aides close to the talks said one of the proposals probably would be included in the final deal. The Social Security changes would be part of $120 billion in domestic program savings over five years included in the $500 billion deficit-reduction package.
The proposal to tax a larger percentage of Social Security benefits would affect individuals with annual income exceeding $25,000. Currently, those individuals pay tax on 50 percent of their Social Security benefits. The proposal would tax up to a maximum of 85 percent of the benefits, on a sliding scale according to income.
The bargainers had tentatively agreed on $170 billion in defense spending reductions and $130 billion in higher revenues over the five years, officials said. Other savings would come from lower interest payments and miscellaneous savings.
As the talks came down to the wire, Republicans were seeking assurances that any budget cuts agreed to would be enforced for the five-year duration of the agreement.
”We`re in the last two minutes, that`s where it is,” White House Chief of Staff John Sununu said after emerging from talks with Republicans on Capitol Hill. ”I think things are going well.”
House Speaker Thomas Foley (D-Wash.), one of the most cautious of congressmen, said the bargainers were ”in the precincts of reaching a conclusion, rather than in the wrap-up stage.”
The most divisive issue in the talks, President Bush`s push for a cut in the capital-gains tax, was the subject of intense negotiations, with some participants pointing to an alternative plan that would exclude some capital profits from taxation, but not all, depending on how much of the profit resulted from inflation.
Called ”indexing,” the proposal was receiving good reviews by Republicans, but Democrats still viewed the proposal as a break for the rich and wanted higher taxes on the wealthy in return.
”The question always has been how it`s paid for,” said a top Democratic aide.
To pay for the break, several proposals had surfaced that would limit income-tax deductions for the wealthy, sources close to the talks said. In one plan, couples earning more than $100,000 would be able to claim deductions only when the deductions exceeded 10 percent of their adjusted gross income.
Democrats were studying that plan and also had proposed lifting the earnings ceiling above which Medicare taxes are not taken out of paychecks. Currently, wage earners pay a 1.45 percent tax to support Medicare on earnings up to $51,300. Under the plan, that ceiling would be lifted to $65,000.
The bargainers had tentatively agreed on increases in cigarette, alcohol and gasoline and other energy taxes, officials said.
In addition, dozens of federal programs were facing cutbacks, including benefits for the poor, agriculture support programs and children`s
initiatives.
The magnitude of the taxes and spending cuts was causing severe consternation among rank-and-file senators and congressmen of both parties, indicating it might be rejected by the full Congress.
The House and Senate scheduled rare Sunday sessions to deal with the budget mess. In addition to the automatic budget cuts looming under the Gramm- Rudman-Hollings law, the government technically runs out of money on Monday.
Democratic leaders had prepared stopgap funding legislation to tide the government over for a few days, and planned to ask the House and Senate to vote on it Sunday.
The likelihood of passage of that bill was tied directly to the fate of a deficit-reduction deal.
Sen. Trent Lott (R-Miss.) said that, if leaders were expecting him to vote for a package that includes severe spending cuts and large tax increases, ”they are smoking something.”
”Who wants to vote for Medicare cuts,” he said. ”Nobody wants to do anything like that.”
