Clinton Rallies Democrats for Final Budget Battle : Economy: He tells meeting of House leaders that his deficit-reduction plan will cost the average working family only $1 a week more in taxes.

WASHINGTON —  Rallying Democratic troops for a final budget battle, President Clinton said Tuesday that average working families will pay only “a buck a week” more in taxes if his budget is enacted by Congress.

And he said that the legislation, designed to reduce the deficit by $500 billion over the next five years, places 70% of the tax burden on families making more than $200,000 a year.

“Yes, it is painful,” Clinton told Democrats on Capitol Hill. “But this is not a time to turn back. This is not a time to blink.”

Clinton’s appearance, greeted warmly by House leaders, kicked off a major sales campaign for the budget bill designed to overcome public skepticism and political jitters among congressional Democrats.

“You cannot make me believe, once you get out there and tell the truth to the people in any district represented in this room, that the average middle-class family with income above $30,000 a year and below the income tax threshold (of $115,000 a year) wouldn’t pay a buck a week to get this deficit down,” Clinton said. “I think they would.”

Afterward, Rep. John Lewis (D-Ga.), a chief deputy whip, said that Clinton had delivered “a great message--it was a call to arms.” House Majority Leader Richard A. Gephardt (D-Mo.) added: “We’re not going to blink--we’re going to get it done.”

Leon E. Panetta, director of the White House Office of Management and Budget, told reporters that Clinton has clearly signaled that he is willing to go along with a Senate-passed gasoline tax increase of about a nickel a gallon as part of a Senate-House compromise. Agreeing to the gas tax means that Clinton would abandon the wide-ranging energy tax he sought originally and the House approved.

Treasury Secretary Lloyd Bentsen also said Tuesday that he now favors a gasoline tax similar to the one approved in the Senate. Bentsen said he believes some attacks on the Administration’s original energy tax were legitimate, especially those voiced by senators from energy states who said that it would hurt the international competitiveness of American manufacturers, because they would face higher energy costs than their foreign rivals.

Tax writers from the House and Senate tentatively agreed Tuesday to retain the provisions in the Senate and House bills that would raise corporate income taxes from 34% to 35% rather than increase it to 36%--as Clinton originally recommended. A Treasury official said the Administration now supports the 35% level.

In his remarks, the President acknowledged that he and his lieutenants failed to get the word out to voters on what the budget bill would do and allowed Republicans to portray it as a heavy new tax burden on the middle class.

Clinton said he wants to limit further spending cuts in the budget legislation, but he indicated that he would go along with Senate-approved provisions to reduce Medicare outlays by $58 billion over the next five years, a cut $8 billion deeper than the House figure.

He praised a provision sponsored by Rep. Robert T. Matsui (D-Sacramento) that would reduce taxes on venture capital investments in small firms as a way of creating jobs.

The President also said that a provision to allow small business firms to deduct up to $25,000 a year for capital investments should remain in the final version of the bill, although Democratic leaders preferred to trim it back or drop it.

Clinton spoke to the legislators one day after former House Postmaster Robert V. Rota implicated Rep. Dan Rostenkowski (D-Ill.), the powerful chairman of the House Ways and Means Committee, in an embezzlement scam. The President said the accusations about Rostenkowski will not affect the Chicago Democrat’s critical role in negotiations to work out a final budget.