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GOP LEADERS AGREE ON TAX CUT; PORTIONS OPPOSED BY CLINTON

House and Senate Republican leaders reached a unified front on a $135 billion tax-cut proposal Tuesday, including an agreement to eliminate capital gains taxes on inflation-caused profits, an item bitterly opposed by the Clinton administration.

"I believe we will have a bill to go to the president with" today, House Speaker Newt Gingrich said after the meetings between House and Senate Republicans.

Sources familiar with the talks emphasized the agreement on the House and Senate bills represented a starting point for detailed discussions with the White House to complete a tax-cut bill.

Republicans agreed to move closer toa controversial House provision that denies much of the proposed $500 per child tax credit to low-income working families who don't owe income taxes after other tax breaks. The White House strongly opposes such language as unfair.

But the GOP also agreed to move toward the White House with its proposal on education tax incentives for college students and others, including a $1,500 tuition credit that was in the Senate tax bill, sources said.

Unresolved issues include two key revenue raisers, the extension and modification of airline ticket taxes and whether to increase tobacco taxes.

As a preliminary matter, House Republicans also have reached "an agreement in principle" to back a tobacco tax increase if needed so the GOP can meet a target of an $85 billion net tax cut over five years, a senior staff member in the talks said. No further details were immediately available, and other sources emphasized the understanding was tentative.

President Clinton, in remarks to reporters, remained optimistic a deal would be reached, despite the GOP leadership turmoil.

"I don't have any comment about what's going on among the Republicans, except that I don't believe it will interfere with our ability to reach an agreement," Clinton said. "I don't think they will permit it (to) do so."

Both sides are trying to craft a compromise on the biggest tax cut in 16 years, providing benefits to college students, investors, families with children and businesses.

While many details of the unified Republican plan weren't available, Senate Majority Leader Trent Lott, R-Miss., and Sen. Don Nickles, R-Okla., his second-in-command, said they expect it to include "indexing" of capital gains. That means the portion of investment profits attributed to inflation wouldn't be taxed if the investment was held for at least five years.

"It will be in," Nickles said in response to a reporter's question.

Clinton has threatened to veto any capital gains tax cut with indexing on the grounds that it would be so costly after five years that it would threaten to throw the budget out of balance.

Responding, meanwhile, to Republican complaints that he has failed to assert the leadership needed to shore up Medicare, Clinton on Tuesday strongly endorsed efforts to charge affluent senior citizens more for their medical benefits and promised to defend any lawmaker who voted for the approach.

Clinton's unexpected remarks came just one day after a proposal to add a wealth test for Medicare appeared to collapse and seemed to breathe a flicker of life into the plan, which has been a touchy issue in House-Senate budget talks.

"My best judgment is that a big majority of the American people will support this," Clinton said of plans to impose a "means test" for well-off Medicare beneficiaries. The Senate's means-testing plan would kick in at annual income levels of $50,000; Clinton did not specify an income level.

In an exchange with reporters, Clinton added: "I would be happy to defend the vote of any member of Congress, Democrat or Republican, who votes for this."

The White House approach, which would use the Treasury Department to process the higher payments, was immediately attacked by some Republicans as a back-door tax increase.

Clinton's comments, moreover, triggered a guessing game on Capitol Hill as to whether the White House truly supported the plan or had seized on an elaborate way to sabotage it.

Under the administration plan, the Treasury Department, parent of the Internal Revenue Service, would mail a "Medicare premium adjustment form" to senior citizens each year. It would tell seniors how to compute their income, and those owing money would be instructed to write a check to the "Medicare Trust Fund" and send it to Treasury by April 15.

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