Congress Starts Again on Budget : Deficit: A House panel eliminates some unpopular features of the rejected accord. A confrontation appears likely to replace a bipartisan approach.

WASHINGTON —  Jolted by President Bush’s puzzling remarks about a budget trade-off involving capital gains and a top-bracket rate increase, Congress began work Wednesday on crafting a new $500-billion deficit reduction package to replace a summit agreement that was repudiated by the House.

Acting by voice vote, the House Ways and Means Committee cleared a package of tax increases and spending cuts that would jettison some of the most unpopular provisions of the original budget accord and lower red-ink spending by $197 billion over the next five years.

This bare-bones package, however, is not expected to survive intact, since Democratic and Republican leaders are likely to draft substitute packages with additional revenue-losing “sweeteners,” then fight it out on the House floor. Other committees will propose spending reductions for defense, federal benefit programs and savings on interest to bring total savings to $500 billion.

The House, already in disarray, seemed to unravel even a bit more as the complexities of revising the summit agreement became more apparent. Instead of presenting a united front on the difficult deficit reduction issue, leaders of both parties virtually gave up on a bipartisan approach, and, at least in the House, a sharp confrontation along political lines appeared ever more likely.

In the Senate, Finance Committee members met behind closed doors to draft a new plan in the wake of Bush’s apparent retreat from a compromise that would have cut the capital gains tax in exchange for an increase in the top income tax rates.

Bush, who triggered a wave of Democratic criticism for backing away from his news conference remarks that he might accept the capital gains compromise, remained silent about the apparent reversal on a campaign swing in the South.

“Let Congress clear it up,” the President snapped to reporters as he entered his limousine in St. Petersburg, Fla.

And Wednesday night at a political fund-raiser in Atlanta, Bush declared that he will not sign legislation that would continue to fund the government on a short-term basis beyond Oct. 19 unless lawmakers have fully implemented the deficit-cutting deal by then. “The clock is running and it’s going to keep on running and I’ll veto it again if we don’t get a satisfactory deal,” he said.

But the President reached out to Republican supporters in the House in preparation for a new round in the budget crisis, scheduling three separate meetings today with GOP congressional leaders, GOP members of the Ways and Means Committee and the 71 Republicans who voted early last Friday for the package that had been crafted by congressional leaders and White House officials.

In another development, the House GOP Policy Committee endorsed an alternative deficit-cutting package that would make bigger cuts in domestic programs, reduce the capital gains tax and eliminate proposed taxes on gasoline and refined petroleum products. This proposal also would reduce Medicare cuts to $50 billion instead of the original agreement for $60 billion and would raise the top-bracket rate to 31% from the current 28%.

House Majority Leader Richard A. Gephardt (D-Mo.) told reporters that Democrats may have to provide the majority of votes for a second-time-around budget package that may or may not include the capital gains compromise.

“I think we’re going to get a package done,” Gephardt said. Asked whether any such legislation could get House approval so close to the November elections, however, he replied: “I don’t know the answer right now.

“Things are still in a state of flux after what the President said. At this point it’s impossible to say whether we can get a majority in both houses and have the President sign the bill.”

Bush’s apparent agreement to withdraw his statement of possible support for a budget trade-off that would include his cherished capital gains tax cut touched off a storm of criticism from Democrats and forced recalculations by key committees.

Without the President’s support, the trade-off appeared dead, even though White House Press Secretary Marlin Fitzwater told reporters aboard Air Force One that the President’s mind was not completely closed on the issue.

Senate Majority Leader George J. Mitchell (D-Me.) said the President’s turnabout would make it more difficult to put together a budget package that would get bipartisan backing.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Finance Committee, had planned to include an increase in top tax rates and a reduction in capital gains taxes as part of his revised budget package, but Bush’s reversal sent him back to the drafting table.

“I had the deal all worked out until the President changed his position on taxes,” Bentsen said.

Democrats on the Finance panel met privately most of Wednesday afternoon to revise Bentsen’s original plan in view of the President’s announced opposition after he met with a group of Senate Republicans.

The Ways and Means Committee, meeting behind closed doors, sent its package of tax increases to the House Budget Committee. Although the measure was considered to be largely a “plug” to meet the panel’s obligations, Democrats and Republicans were likely to use many of its provisions as building blocks in drafting their own alternatives before a House showdown, possibly as early as next week.

The committee’s package, however, dropped several parts of the budget agreement worked out by White House and congressional negotiators and rejected by the House last week. Rep. Dan Rostenkowski (D-Ill.), chairman of the panel, said the dropped provisions were “totally obnoxious” to the House.

Dropped were a 2-cent-per-gallon tax on home heating oil, a plan to make jobless people wait an extra week for unemployment benefits, a $12-billion package of incentives for investment in new small businesses and other revenue-losing tax breaks for business.

A proposed 10-cent-a-gallon increase in gasoline taxes was reduced to 9 cents in the committee package, but other recommended levies on alcohol, beer, wine, cigarettes and luxury goods were retained.

In another change clearly aimed at Senate Minority Leader Bob Dole (R-Kan.), the committee added a luxury tax on private airplanes costing more than $100,000--a provision that would pick up $800 million in revenue between now and 1995. Dole, whose district includes private airplane manufacturers, had a similar provision removed from the rejected agreement.

On the politically sensitive Medicare issue, the Ways and Means package would soften the impact on elderly beneficiaries.

For example, the committee package would raise the Part B insurance premium for doctor bills from the current $28.60 a month to $32.40 next year, and to a high of $46.50 in 1995. By contrast, the budget deal worked out by the White House and congressional negotiators would have raised the premium to $33.50 next year and a peak of $54.30 five years from now.

The committee package also proposed a Part B deductible of $100 in 1991 and $125 thereafter, compared to the earlier proposal’s plan for raising the current $75 deductible to $100 next year, $125 in 1991 and $150 after 1993.

Opposition to the proposed $60-billion cut in Medicare in the original package was regarded as a key factor in its defeat by a combination of conservative Republicans and liberal Democrats on a 254-179 roll-call vote, despite the best efforts of the President and bipartisan leaders in the House.

Since the accord failed, however, there have been strong differences among Republican and Democratic leaders on how to revise the summit agreement to get enough votes to pass it.