Democrats Plan Vote on Tax Cut : Congress: Bush shifts gears and endorses GOP package. Angry opposition leaders scrap plans to adjourn and prepare for hearings on their own bill.

WASHINGTON —  House Democratic leaders, reacting to President Bush’s sudden call for a vote on a $23-billion tax reduction package offered by Republican lawmakers, scrapped their plans for adjournment late Tuesday and began preparing for a vote on their own tax cut bill in December.

In a day filled with partisan rancor as Congress attempted to move toward adjournment for the year, the President’s embrace of the tax reduction plan put forward by House Minority Whip Newt Gingrich (R-Ga.) angered Speaker Thomas S. Foley (D-Wash.) and his Democratic lieutenants.

In response, the Democrats decided to scrap plans to quit for the year and tentatively arranged to hold hearings on tax legislation and vote in December on a Democratic package geared to middle-income tax cuts.

The escalating dispute over tax cut legislation underscores increasing uneasiness in both the White House and Congress over the foundering U.S. economy and sharp disagreements over what the government should do to provide a stimulus to recovery.

The House GOP tax plan includes a proposal long sought by Bush to reduce the tax on capital gains. It also would exclude from taxation up to $700 in interest earnings from savings deposits for taxpayers with annual incomes below $50,000, provide a tax break on withdrawals from Individual Retirement Accounts for first-time home buyers, relax the penalty-free earnings limit for Social Security recipients and provide a tax break for major real estate investors.

A rival proposal favored by House Democrats would provide an income tax credit of up to $200 for individuals and $400 for couples subject to Social Security withholding. The revenue reduction would be offset by creating a new 35% top-bracket tax rate on high-income taxpayers and imposing an additional 10% surtax on millionaires.

After meeting with fellow House Democrats late Tuesday night, Foley criticized Bush in unusually harsh terms. “It was unbelievably irresponsible for the President to suggest that he would like us to vote today on a proposal that wasn’t even a legislative proposal until last night and has been cost-estimated at $23 billion,” he said. “It is totally irresponsible.”

Foley said he would not adjourn the House for the year until it had finished work on essential legislation. Unless the lawmakers finish today, he said, they will have to come back next week. That would also prevent the Senate from adjourning.

Rep. Charles E. Schumer (D-N.Y.) said the Democrats were not going to fall into a political trap “just because the President puts this higgledy-piggledy package together.”

Bush, plagued by falling opinion polls, apparently called for the floor vote in an effort to shift blame for the nation’s economic troubles to the Democratic-controlled Congress.

Questioned by reporters at the White House about his attitude toward the tax proposal advanced by House Republicans, Bush replied: “Put me down as enthusiastically for it.” But he said he would not ask Congress to remain in session any longer to deal with the slumping economy.

“If they want to pass this, let them pass it today,” the President said. “This idea of dancing around--that’s not good enough for the American people. . . .” Bush made his comments during a photo session with visiting Russian Foreign Minister Andrei V. Kozyrev.

Asked why he wanted Congress to vote on the GOP plan before adjourning, Bush told reporters: “They’ve been here all year long, and the economy’s in trouble. That’s the answer.”

In the Senate, both Majority Leader George J. Mitchell (D-Me.) and Minority Leader Bob Dole (R-Kan.) reacted angrily to the developments in the House. Dole said he saw no point in returning next month and added that the White House had not informed him of the President’s endorsement of the House GOP package.

Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, said he tentatively planned to hold hearings on Dec. 5-6 and then call for a committee vote on a tax bill the following week, with the prospect of a full House vote by Dec. 19-20.

The proposal to provide a tax reduction of up to $400 per working couple during the next two years and pay for it by raising taxes on the wealthiest Americans would be the centerpiece of the Democratic tax cut proposal, Rostenkowski said.

“I think we need to call the House Republicans and this Administration’s bluff on a growth package once and for all,” said Rep. Thomas J. Downey (D-N.Y.), threatening that the package produced by Democrats will not be anything like the “tax cuts for the rich” proposed by Republicans. Downey and Sen. Albert Gore Jr. (D-Tenn.) have already proposed a plan that would reduce taxes for middle-class taxpayers and increase them for the wealthy.

Rep. Bill Archer (R-Tex.), the ranking GOP member of the Ways and Means Committee, said he expected that the Democrats would push their bill through the panel on a party-line vote.

“The game the Democrats are playing is to send the President a bill he will veto and then try to get some votes (political advantage) from that,” Archer told reporters.

For his part, Rostenkowski said he would invite the President to testify on the Republican plan that Bush endorsed Tuesday despite having seemed cool to the proposal the day before.

“Since he adopted it enthusiastically, I think he ought to come here and tell us about it,” Rostenkowski said in an interview.

The fact that Rostenkowski, a personal friend of Bush, would make such cutting remarks indicates how deeply Democrats feel about the President’s unexpected call for a House vote on a tax plan that has not been aired in hearings or evaluated by congressional tax experts.

Despite the political jousting over taxes, Congress worked its way through a long list of legislation Tuesday on the assumption that adjournment for the rest of 1991 was in the offing.

Congress neared final approval of a bill to extend a dozen popular tax breaks, including a low-income housing tax credit and a business research tax credit, for the first six months of next year. There was overwhelming bipartisan support for the tax break “extenders,” and Bush indicated he would sign the measure.

In another important action, Congress approved and sent to Bush a follow-up to legislation enacted only two weeks ago, providing a more generous extension of unemployment benefits to those who exhaust their regular benefits.

Passage of the second jobless benefits bill--which Bush also is expected to sign into law--marked the final congressional chapter in a long stalemate with the White House over the issue. At first, the President said that extended payments for those whose regular benefits had expired was not necessary; then he successfully insisted that Congress come up with a method to pay for the additional costs.

Eventually, a bipartisan compromise was approved by both the House and Senate. But strong complaints by many senators that their states were shortchanged by the formula in the first bill led to immediate approval of a second measure to supersede the first with enhanced benefits for workers in 23 states.

The main focus of debate in the back rooms of the Capitol, however, was the stand taken by Bush to pressure the House to accept the GOP “growth package” containing a number of popular tax-cutting measures that would be politically difficult to resist.

White House Press Secretary Marlin Fitzwater said there had been “some misunderstanding” about the President’s earlier position on the measure and insisted: “We meant to be supportive.” The White House spokesman said he saw no reason to doubt GOP lawmakers’ claims that the package would not increase the federal deficit--a claim disputed by Congress’ Joint Committee on Taxation.

The political maneuvering came in the wake of new polls by The Times and other organizations that found support for Bush to be declining sharply as Americans grow increasingly pessimistic about the state of the economy.

A New York Times-CBS News poll showed Bush’s approval rating at 51%, down 16 points from a month ago. Only 8% agreed with the President that things are getting better economically; 25% approved of his handling of economic matters.

In an interview released Tuesday, Bush said he was not “wringing my hands” over the poll numbers. But in the face of growing public pressure for action on the economy, his spokesman indicated that the Administration was still far from agreement on a plan of its own.

“If it doesn’t happen,” Fitzwater said of the Republican proposal, “we’ll continue to work on the other packages.”